US 30-Year Mortgage Hits 8%

Welcome to BRC’s Breakdown.

With continuing tensions in the Middle East, the markets responded split between two sides. Bitcoin is buoyed by two strong catalysts and is up nearly 20% in two months.

First, let’s see how the markets fared:

Here’s a preview of what we’ll cover:

• Macro: US 30-Year Mortgage Rates Hit 8%

• Around The World: China’s GDP Expands; RBI Tries To Control Inflation

• Crypto: Bitcoin’s Two Unlikely Catalysts Are War And ETFs

• AI: OpenAI Exceeds $1.3 Billion In Annual Revenue 

Macro: US 30-Year Mortgage Rates Hit 8%

While geopolitical risk because of the Israel-Palestine situation continues to increase, the theme of higher US interest rates for longer continues to dominate financial markets globally. US Bond yields went up (i.e. bond prices went down). Globally, stock prices went down. Crude oil prices also edged up for the second week in a row.

Gold & Bitcoin, both saw sharp increases in prices during the week. The rise in Bitcoin prices was driven by hopes of the SEC approving an ETF.

Economic activity in the US changed little over the last six weeks, according to a new Federal Reserve report (Beige Book). It reported labor market tightness (difficulty of hiring) decreasing, with prices continuing to increase, although more modestly.

US 30-year mortgage interest rates hit 8% last week. Two years ago, this rate was 3.5%.

Not surprisingly, existing home sales in September dropped to their lowest point since October 2010. Sellers (who have a lower rate mortgage locked in) are hesitant to sell & move (whether it is to a larger house or to a new location). At the same time, buyers cannot afford to pay up for houses given high mortgage rates.

Around The World: China’s GDP Expands; India’s RBI Looks To Control Inflation

Reserve Bank of India (RBI) released the minutes of the Monetary Policy Committee (MPC) meeting on Friday, October 20, highlighting that India's headline inflation is still above the tolerance band. So, the central bank's monetary policy needs to remain actively disinflationary, according to the MPC minutes. Any prospects of a change in India's interest rate policy look to be some time away.

China's gross domestic product (GDP) grew 4.9% in the September quarter, data from the National Bureau of Statistics showed. It exceeded the expectations of economists polled by Reuters but was lower than the June quarter growth of 6.3%.

Based on the recent data, China seems to be on track to meet its 5% target for 2023 overall, with the recent government stimulus. Headlines from the property sector remain a concern.

Japanese core inflation (excluding food and energy) fell below 3% for the first time in more than 12 months in September but remains above the central bank's target of 2%. The next Bank of Japan monetary policy meeting is on Oct 30/31. USD/JPY exchange rate has been just below 150 despite sharp moves in USD/EUR and USD/GBP.

Bitcoin’s Two Unlikely Catalysts: War and ETFs

Bitcoin is up 80% in 2023, but 20% since September 2023. The reason might be surprising or not depending on how one views the digital asset.

In the past two months, Bitcoin has had two major catalysts – global conflict and rising hopes of a BTC ETF approval. Conflict in the Middle East between Israel and Palestine has shifted investors’ focus on Bitcoin from an investment to a hedge against uncertainty. This follows the price move of gold, which is also up since the conflict began.

Greg Magdini, director of derivatives at Amberdata said:

Rising conflict, especially in an area with global interest, results in high spending among allied nations. This causes inflationary pressure in local economics. In the cast of the US, President Joe Biden has asked Congress for $105 billion for humanitarian and military aid to Israel and Ukraine.

This increase in spending would likely pause any hikes in the Fed interest rates as the US economy gets returns to normalcy.

Further, Blackrock, ARK Invest, Invesco, and other applicants are waiting with baited breaths on the approval of a Bitcoin ETF which will cause a considerable inflow of capital into the Bitcoin markets, albeit through contracts.

OpenAI Has Got Competition…And It’s From China

Baidu, one of China’s largest internet companies unveiled Ernie 4.0, its most advanced conversational AI chatbot. Erine 4.0 is meant to directly rival OpenAI’s GPT-4.

Robin Li, the CEO of Baidu outlined four aspects of Ernie 4.0 which have been improved:

• Comprehension of natural language

• Deductive reasoning

• Ability to memorize data

• More accurate output generation

Baidu’s plans for Ernie are far more "push-focused” than OpenAI’s plans for Chat GPT. While OpenAI relies on – subscriptions and API usage – Baidu is pushing its AI tech onto its search engine, maps, and cloud storage and computing devices for its enterprise customers.

What to watch out for:

🗓️ Thursday, October 26th

• 🕛 8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 205 thousand initial claims, up from 198 thousand last week.

• 🕛 8:30 AM: Gross Domestic Product, 3rd quarter 2022 (advance estimate). The consensus is that real GDP increased 4.1% annualized in Q3, up from 2.1% in Q2.

Interesting Listens:

Top Headlines Of The Week

• The SEC is not going dark on Bitcoin ETF applicants

• Bitcoin dominance is the highest in over two years

• Following DAO vote, Lido Finance sunsets Solana staking

Quote Of The Week