Japanification

Hello Traders, we hope you’re having a nice weekend. Here are some of the biggest stories this week:

• Chinese government bond yields fell to their lowest level in two decades.
• Authorities in the country banned exports of several key minerals to the US.
• SpaceX is gearing up for an insider share sale that could value the firm at $350 billion.
• Crypto ETFs saw record investor inflows in November, and bitcoin hit $100,000.
• OPEC+ delayed its plan to begin raising oil production until April.

Dig deeper into these stories in this week’s review.

China

Local investors in China are flocking to the nation’s government bonds, betting that further monetary easing – such as interest rate cuts or reductions to the reserve requirement ratio – will be needed to stimulate the world’s second-biggest economy. So much so that the yields on China’s benchmark 10-year bonds slipped below 2% on Monday, hitting their lowest level in 22 years. Just days earlier, China’s 30-year bond yields fell below Japan’s for the first time, sparking concerns among some investors about the potential “Japanification” of the Chinese economy, where it becomes mired in deflation. Put differently, some observers reckon that certain conditions in China’s economy today echo those seen in Japan in the 1990s, when the bursting of a real estate bubble led to decades of deflation and stagnation.

China made further headlines this week after the country ratcheted up trade tensions with the US with a ban on several key minerals with high-tech and military applications. Gallium, germanium, antimony, and some other materials – all of which are used in everything from semiconductors and batteries to satellites and night-vision goggles – are no longer allowed to be shipped to America, Chinese authorities said on Tuesday. That won’t be welcome news by the US considering that over 50% of its imports of germanium and more than 20% of its purchases of gallium came from China between 2019 and 2022.

The announcement came just a day after the US government imposed new restrictions on technology exports to China, highlighting the tit-for-tat dynamic of the ongoing trade tensions between the world’s two biggest economies. Some observers reckon that the quick Chinese response is meant to signal to the incoming Trump administration that the country is prepared to strike back more forcefully against US economic pressure than it has in the past few years.

SpaceX

Elon Musk’s SpaceX is reportedly gearing up for an insider share sale that could value the rocket-and-satellite firm at $350 billion – a huge jump from the $210 billion it fetched earlier this year. The potential transaction, through which employees and some early investors can sell shares while the firm stays private, would cement SpaceX’s status as the most valuable private startup in the world and rival the market capitalizations of some of the biggest public companies. SpaceX has established itself as one of the industry’s dominant rocket launch providers, lofting satellites, cargo, and people to space for NASA, the Pentagon, and commercial partners. It’s also building out a huge network of Starlink satellites providing global internet connectivity.

Accessing space has never been more feasible or profitable, with launch costs plummeting and the number of launches surging at an impressive 50% annual rate. These advancements, coupled with cutting-edge satellite technology, are revolutionizing internet access, navigation, weather forecasting, and climate change solutions. So it's no surprise that the World Economic Forum projects the space economy to soar to $1.8 trillion by 2035 – roughly three times its value last year. This represents an annual growth rate of 9%, or almost double the expected growth of the global economy (in nominal terms). After all, far from being a niche sector, space is now a driving force across multiple industries like technology, defense, communications, and more.

Crypto

US ETFs that invest directly in bitcoin and ether are enjoying unprecedented demand, driven by President-elect Donald Trump’s pro-crypto stance and expectations of a more favorable regulatory environment toward digital assets under the incoming administration. Case in point: bitcoin and ether ETFs each set new records for monthly net inflows in November, at $6.5 billion and $1.1 billion, respectively. The interest in ether – the biggest token after bitcoin – points to a widening investor appetite for cryptocurrencies, and follows a typical market trend where bitcoin’s rise often paves the way for gains in ether and other large coins. All in all, the crypto market’s combined market capitalization has jumped by over $1 trillion since Trump became president-elect, according to CoinGecko.

Does that massive jump in market capitalization suggest a repeat of the 2021 crypto mania? It’s hard to say. On one hand, while bitcoin is on a record-breaking tear and surged past $100,000 this week, many altcoins are still trading below their peaks from three years ago, hinting that peak "FOMO" – fear of missing out – may not have arrived yet. On the other hand, the surge in downloads of crypto exchange apps and heightened speculation in so-called memecoins point to increasingly frothy market conditions.

Oil

OPEC+ has delayed a plan to begin raising oil production until April, as the group of oil-producing countries tries to revive crude prices that have continued to struggle. The planned increases would have lifted the group’s production by 180,000 barrels a day in January, as part of a gradual unwinding of 2.2 million of barrels a day of cuts over 12 months. But OPEC+ has now agreed to delay the move by three months – marking the third time it has postponed its plans to increase supply. It also announced that it will unwind the cuts at a slower pace than previously laid out. This comes as weakening fundamentals hinder the group's efforts to tighten the market, as demand in top consumer China falters while supplies in the US, Brazil, Canada, and Guyana rise. The cartel also probably wants to gauge the incoming US administration’s impact on global oil supply before making a move.

Next week

• Monday: China loan growth (November), China inflation (November), eurozone economic sentiment (December). Earnings: Oracle.
• Tuesday: China trade balance (November).
• Wednesday: US inflation (November). Earnings: Adobe.
• Thursday: European Central Bank interest rate announcement. Earnings: Broadcom, Costco.
• Friday: UK GDP (October), eurozone industrial production (October).