Asset Classes Set All-Time Highs

Week Ending, 1st March, 2024

Below are the YTD returns for a selection of global assets in US$ terms:

February was a strong month but, most notably, some asset classes (like the Nikkei) set all-time highs from its previous record set in 1989. The S&P 500 also broke through the 5,000 level. As the chart also shows:

• Asian equities did very well.
• Bitcoin rose very strongly (+44.7%). The driver of this is a combination of factors, such as the halving phenomenon and the suggestion that big players are starting to hoard bitcoin while holders are not readily selling.
• The “Magnificent” or “Fabulous 7 tech names are already up +14.1%. Individually, the likes of Nvidia continue to smash it on the back of stellar earnings and revenue growth. Inflows into tech stocks and crypto reached $4.7bn, the most since August 2023 putting annualised flow back on track to almost $100bn. Crypto flows surged $2.4bnas investors rushed into ETFs (Exchange Traded Funds). Bitcoin is now withing sight of its all-time high of $69,000.
• Regional banks still struggle with the Regional Banking Index down -2.8% in February and -9.5% YTD. NYBC (New York Community Bank) is back in the news with fresh rumours surfacing. A new CEO has been named. The Auditors determined NYCB needs to take a $2.4bn goodwill impairment charge which reduce Q4 and 2024 earnings while Management “identified material weaknesses in the company’s internal controls related to internal loan review, resulting from ineffective oversight, risk and assessment and monitoring activities”. The company did not identify whether the issues were related to Flagstar or Signature. Its stock price was down -20% in the pre-open session late last week.
• Sovereign (Government Bonds) fell on the month largely on the back of a strong US inflation data print. In Japan, it is still the expectation the central bank (BoJ) will move away from targeting and pursuing negative rates. As a result, the 2y Government yield rose some +0.10% to 0.17% (its highest since 2011).

Two further comments:

US services inflation (specifically the Fed’s preferred gauge called the PCE inflation index) was printed and it was roughly unchanged. However, a deeper dive shows all is not well and challenges remain. There are seven, core services categories: (1) Housing inflation is running at 6.4% y/y, (2) Financial services & Insurance inflation rose +17.2% m/m to over 5% y/y, (3) Food services & accommodation inflation rose +8.25% m/m to 4% y/y, (4) Healthcare inflation gained +3.5% m/m to 2.4% y/y, (5) Transport inflation rose +0.4% m/m to 3.2% y/y, (6) Recreation inflation gained +4.6% m/m to 4.9% y/y and (7) the Other inflation category rose +9.4% m/m to 2.1% y/y. The reason the headline rate has been coming down so strongly is due to energy price inflation. Crude oil prices settle above $80 per barrel. As the latter starts to seep through, hopes for a rate cut soon are looking in limbo.

China: the National People’s Congress kicks off tomorrow. In that, President Xi will deliver his vision. The economy will be at the heart of matters as China transitions from the old growth model of debt-driven growth to the new model (new growth drivers such as advanced technologies). China’s debt to GDP ratio stands at 286.1% (Non-Financial corporations 167.3%, Households 63.5% and Government 55.3%). Inflation is running at -1.5% y/y i.e. deflation (Producer price inflation -2.7% and Consumer price inflation -0.3%). In the past, China responded with aggressive monetary and fiscal measures but it’s clear it doesn’t want to do anything that ramps up debt again. The national budget is released this month. If it doesn’t want to ramp up credit, what options does it have – especially if it is going to boost demand for goods and services? President Xi has often referred to the need for “high-quality development” (such as innovation for growth, green energy, reform, people’s livelihoods) while restoring confidence around property which is over 60% of the country’s GDP.

MARKET SUMMARY