SVET Markets Weekly Update (January 3–6, 2023)

07 Jan 2023 by rate3

Week One started by market participants changing their traditional ‘positive-negative’ trading mode to the opposite — cheering prices up when leading macro-indicators are set in green. Are recessional sentiments taking over? We have to wait and see.

This week’s brief history:

ISM Manufacturing PMI (Dec): 48.4 percent (fact), 49 (prognosis);
Job Openings (JOLTs) (Nov): 10.458M (fact), 10.1M (prognosis);
Non Farm Payrolls (Dec): 223K (fact), 220K (prognosis);
Unemployment Rate (Dec): 3.5 percent (fact), 3.7 percent (prognosis);
ISM Non-Manufacturing PMI (Dec): 49.6 (fact), 53 (prognosis).
NASDAQ opened this year by sliding from 10562 to 10386 (1.7 percent, with Tesla dropping 8.8 percent and Amazon holding 83) on a day session. It looked like traders, after abandoning all hopes for FED’s early pivot, started to factor in the recession.

One of the triggers was December’s Global Manufacturing PMI report published by SP on Tuesday. It revealed the sharpest decline in the production sector since May 2020 — to 46.2 or -3.2 percent from 47.7 a month earlier. Moreover, this report showed that manufacturers, faced by rapidly weakening customer demand, started to decrease prices and to dig into their stockpiles, which were growing in 2022.

BTC met its 14th birthday in a bit more optimistic mood than the leading tech Index. After regressing by less than one percentage point during the main trading session, BTC bounced back, staying within the narrow corridor of 16600–16900 (on Binance).

Might it be that the FED inadvertently lightened the atmosphere for crypto players a bit? RE: ‘Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type’ (the FED’s ‘Statement on Crypto-Asset Risks’)

Tuesday’s winning game plan was to short the post-trading session and then to buy the resulting deep on the pre-trade. Those who risked it saw the red flashing all over their screen on Wed’s morning when the Bureau of Labor’ report showed only a mild decrease in job openings (to 10.46M in Dec compared to 10.51M a month earlier), while markets expected it to be at 10M. The ISM Manufacturing Index sliding to 48.4 didn’t help either.

Nonetheless, bulls persisted and brought the Index back to its preceding highs the same morning. Only to see it going back to South after FOMC’s minutes revealed that FED’s gerontocracy stands united behind the idea of no rate’s reliefs in 2023.

The resulting back-and-forth kept NASDAQ even on the daily graph (opened: 10467, closed: 10458). Almost synchronously the same happened to BTC (opened on Binance: 16828, closed: 16806).

After institutions completed their takeover of crypto markets in 2021 most bots have been following NASDAQ matter-of-factly. Switching on-off happens usually on big volumes, which indicates either crowd’s over-excitements or conspicuous whale’s entries. It didn’t change in 2022, when institutional crypto investments (funds inflow) dropped 95% — to $433M from 9.1B a year earlier (source: CoinShares). Still, it exceeds levels reached in 2018 (USD 233M) for almost 200 percent.

Thursday’s Unemployment Insurance Report showed a much lower than anticipated number of jobless claims (204K instead of 230K). It sent NASDAQ from the opening 10390 to the close 10305 — the decline of less than one percent. BTC, instead, rose from 16780 to 16859 — up 0.5 percent — showing the accumulation pattern.

This move looks fundamentally unsubstantiated. However, we often see contrarians temporarily having an upper hand on low-volume markets. It might be also explained by several small ‘whales’, followed by a spin of ‘shrimps’, cautiously stepping in to load up on ‘cheap Satoshis’ a bit.

This contrarian view was substantiated the next day by the Bureau of Labor hitting markets with its Dec’s Employment Situation report showing 3.5 percent unemployment rate. It is at the twelve-months’ low and notably less than analysts expected (3.7). The number of jobs most notably increased in Leisure and Hospitality (+67K). Although, in that sector increases tend to happen prior to Christmas, this time it didn’t prevent markets’ overreaction.

At the beginning of this week, we saw participants changing from positives-negatives to positive-positive trading plans. At its closure it happened again with NASDAQ going from 10364 to 10569 during the day’s session (+2 percent, with Tesla adding one percent). At the same time, BTC increased less than a percent on lower volumes (opened: 16774, closed: 16897).

Next week traders’ eyes and ears will be on the Riksbank International Symposium in Stockholm where Powell is expected to provide some clues on what FOMC rate decision might be taken at their January 31st meeting.

Previously, however, there have not been any indications found in Jerome’s rhetoric of his position becoming more reasonable. In view of the job market’s stubbornly stable situation it is very unlikely that FOMC members will repent from their foolish idea to ‘softly’ destroy the world’s economy any time soon.