Understanding the $105 Trillion Global Economy in 2023
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Chapter 1: Weekly Business Overview
In recent weeks, both the Nasdaq and S&P 500 have recorded their second consecutive weekly downturns. This decline was prompted by U.S. producer price data exceeding forecasts, which led to an increase in Treasury yields. This situation adversely affected large-cap growth stocks, known for their sensitivity to interest rate changes. The much-anticipated consumer inflation report released on Thursday revealed that both the headline and core consumer price indices remained stable since June. This development bolstered market expectations that the Federal Reserve would postpone any further interest rate increases. However, Friday's producer inflation data, which was higher than anticipated, dampened risk appetites.
As for the producer price indices for July, both the headline and core metrics showed an uptick compared to the previous month. Nevertheless, the broader trend indicates a cooling in inflation, igniting optimism regarding disinflation. Investors increasingly believe that the Federal Reserve might successfully navigate a "soft landing." In terms of weekly performance, the Dow Jones rose by 0.6%, while the S&P saw a slight dip of 0.3%. The Nasdaq experienced its largest weekly decline since December, dropping by 1.9%. The energy sector stood out with the best returns this week, driven by rising oil prices, while the tech sector faced the most significant setbacks.
Throughout the week, the Dollar Index maintained its upward momentum, achieving gains for four consecutive weeks. The DXY's path aligns with a descending channel established in early 2023. A critical resistance zone is approaching, ranging from 103.00 to 103.50. Within this zone, the 200-day moving average is positioned at approximately 103.34, coinciding with the upper boundary of the channel at 103.50.
A shift in market sentiment appears essential for a potential breakout from this channel. In the absence of such a shift, I expect the DXY to remain confined within this descending channel. A thorough analysis of the weekly timeframe confirms the ongoing downtrend's strength. A definitive close of the weekly candle above the 102.96 level would indicate a structural change, signaling the onset of a bullish trend. As it stands, the current environment can be described as a retracement within the larger downtrend, which continues to attract bearish interest.
Over the past few weeks, the typically volatile cryptocurrency market has exhibited a relatively calm pattern. This past Monday, Bitcoin (BTC) dipped below $29,000, marking the week's low point. However, it quickly rebounded, surpassing the $30,000 mark before Wednesday. Anticipations for increased volatility arose on Thursday due to the forthcoming U.S. Consumer Price Index (CPI) data.
Contrary to these expectations, BTC remained just under the $30,000 threshold, a level it had reverted to shortly before the CPI figures were released. In the following days, the lack of significant movement persisted, with Bitcoin's value stagnating within a narrow range of $29,000 to $29,500. As is often the case, the weekend saw no notable deviations from this trend, which is typical due to reduced trading volumes during this time.
As highlighted in the 2023 World Economic Outlook report by the International Monetary Fund (IMF), the global economy is expected to reach a gross domestic product (GDP) of $105 trillion by the end of 2023, an increase of $5 trillion from the previous year. In nominal terms, this reflects a substantial growth rate of 5.3%. When adjusted for inflation, this growth equates to 2.8%.
Before we delve into other statistics, let’s take a look at the weekly and year-to-date figures from various markets and assets.
This insightful video titled "World Economic Outlook | October 2023" explores the global economic landscape and projections for the near future.
Stablecoin Market Developments
Despite a contraction in the stablecoin market, which has fallen from $180 billion in early 2022 to $125 billion, significant advancements have been made. One notable progress is the House Financial Services Committee’s approval of the Clarity for Payment Stablecoins Act of 2023. Should this legislation be enacted, it would establish a regulatory framework for the issuance and oversight of payment stablecoins. This development would not only grant federal recognition to stablecoins but also align them with their fundamental purpose—serving as secure representations of dollars on blockchain technology.
Enterprise Technology Unicorns
The enterprise technology sector boasts the largest representation, comprising 30% of all unicorns. This category includes tech firms that cater to business-to-business (B2B) applications or provide products and services across various industries. Given the diversity within this segment, it has been further divided into specific categories, such as information security and data management, each contributing 5% to the overall unicorn count. Closely following are the consumer and retail industries, along with the financial services sector, both holding an equal share of 18% in the global unicorn landscape.
The video titled "Mapping the Global Economy: Visualizing the $105 Trillion Worth World" provides a visual representation of global economic distribution.
Immigrant Founders of U.S. Unicorns
According to the National Foundation for American Policy (NFAP), a substantial number of U.S. unicorns—privately held startups valued at over $1 billion—have at least one immigrant founder. While some of these companies and their founders, like Elon Musk's SpaceX from South Africa, are well-known, many lesser-recognized unicorns have emerged thanks to the remarkable skills from a select few countries. An infographic based on NFAP data illustrates the nations that host a significant number of founders behind billion-dollar startups in the United States, reflecting the situation as of May 2022.
Apple Services Performance
Citing robust currency headwinds and an "uneven macroeconomic environment," Apple recently reported its third consecutive quarter of declining sales. In particular, iPhone sales fell by 2%, totaling $39.7 billion in the June quarter. This decline is typical for this period, which often sees reduced iPhone sales as new models approach. Mac sales experienced a similar trend, decreasing by 7% to $6.8 billion. Despite this, Apple remains optimistic about its Mac lineup, which is now fully powered by the company's proprietary silicon.
Interestingly, the iPad segment recorded the most significant year-over-year decline, nearing 20%. This drop can be partly attributed to the launch of the popular iPad Air during the previous year's June quarter. Conversely, Apple's services division thrived, demonstrating an 8% growth, reaching a new record of $21.2 billion. This impressive growth now accounts for over 25% of the company's total sales, underscoring the growing importance of the services segment within Apple's business model.
U.S. Critical Minerals Dependence
The transition to a more sustainable future necessitates the acquisition of several key minerals essential for building the components of the green economy. Unfortunately, the United States relies heavily on imports of nonfuel minerals, a vulnerability that could jeopardize the resilience of its supply chains. Notably, the U.S. is entirely dependent on imports for at least 12 critical minerals identified by the government.
These essential minerals are predominantly sourced from China, which serves as a primary import origin for many critical minerals. A graphic utilizing data from the U.S. Geological Survey (USGS) effectively illustrates the extent of America's reliance on imports for 30 vital nonfuel minerals, while also pinpointing the major countries from which the U.S. imports these minerals.
Funding Trends
In the second quarter of 2023, corporate venture capital (CVC) investments and transactions saw an upward trend. Notably, CVC-backed deals increased after a four-quarter decline, with funding for these initiatives reaching $14.6 billion, marking the end of a six-quarter drop in funding levels. For more detailed insights into investment trends across the U.S., Asia, and other regions, customers of CB Insights can explore their comprehensive State of CVC Q2 Report.
Market Comic: Are Oil Prices Set to Rise Further?
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