SVET Markets Weekly Update (Feb 6–10, 2023)

11 Feb 2023 by rate3

This week, NASDAQ saw a decline of 1.5 percent with its opening value of 11904 and closing of 11718. Meanwhile, BTC decreased by 5.3 percent from its opening of 22932 five days ago to its closing of 21724. Both of these changes can be considered as part of a normal corrective trend.

Week’s macroeconomic notable updates:

Initial Jobless Claims (Feb/04): 196K (fact), 190K (prognosis);
Michigan Consumer Sentiment (Feb): 66.4 (fact), 65 (prognosis);
IBD/TIPP Economic Optimism (Feb): 45.1 (fact), 42.9 (prognosis);
Balance of Trade (Dec): -67.4B (fact), -68.5B (prognosis);
Government Budget (Feb): -39B (fact), -63B (prognosis).
With markets hovering at mid-2022 levels, the number of institutional investors willing to take on more risk has drastically decreased. As a result, traders started to look for pretexts to secure their profits on Monday. The Powell speech, scheduled for Tuesday at 9:40 AM (EST), appeared to be a good enough reason to stop buying but not yet to start selling.

This was the situation on Monday when, suddenly, everyone stopped talking about the “disinflation” and the discussions shifted back to “recession being inevitable.” As a result, both NASDAQ (open: 11904, close: 11887) and BTC (open: 22828, close: 23005) remained stagnant.

From two key phrases uttered by Powell during Tuesday’s question-and-answer session with Mr. Rubenstein, head of the Carlyle Group, at the Economic Club of Washington, traders chose “disinflationary process has started” and disregarded “we have to do more and raise rates more than is priced in” (if there are strong labor market reports or higher inflation reports).

This led to the NASDAQ closing at 12,113, adding 1.9 percent to its opening at 11,891. At the same time, BTC increased by one percent, from 22,982 to 23,194, with two competing narratives in traders’ minds: “golden cross” and “Valentine’s Day massacre” (in reference to expectations of a possible sell-off on February 14th if the yearly core inflation rate is higher than 5.7 percent).

“I am prepared for a longer fight to bring inflation down to our target,” said Mr. Waller, an appointee of Trump to the FOMC and a former VP at the St. Louis FED, at the Arkansas State University Agribusiness Conference. However, this statement was not the cause of the 1.3 percent decrease in NASDAQ (open: 12069, close: 11910) and a 1.0 percent drop in BTC (from 23114 to 22874) during Wednesday’s trading session.

The bulls’ momentum was weakening on technical charts and the bears were seeking revenge, leading to increased volatility. Meanwhile, the World Agricultural Supply and Demand Estimates (WASDE) report showed that, despite the ongoing war in Ukraine, “The global outlook for wheat in 2022/23 is for increased supplies, consumption, trade, and stocks.”

On Thursday, the Labor Department reported 196K insured jobless claims for the Week 5, which was not in line with market expectations of 190K. The non-seasonally adjusted jobless claims, which include predictable seasonal fluctuations such as temporary layoffs, rose by 10K to 235K, a 4.3% increase. The largest increases were observed in California, Ohio, and Illinois.

Despite the visible deterioration in the employment situation, the nationwide insured unemployment rate remained strong at 1.2% for the 4th week. The highest insured unemployment rates were recorded in New Jersey, Rhode Island, and California.

During Thursday’s trading session, the markets continued to correct, with NASDAQ declining by 2.3% (open:12069, close:11789) and BTC dropping by 3.3% (open:22747, close:21994). I would argue that the market’s main driving factor remains technical rather than fundamental.

On Friday, Mr. Waller, a member of the Federal Open Market Committee (FOMC), presented his views on the cryptocurrency ecosystem at the “Puzzle of Crypto” Conference in La Jolla, CA.

I have commented on the level of “understanding” among aging bureaucrats regarding cryptocurrencies since 2015. If Mr. Waller, who’s “supportive of prudent innovation in the financial system”, serves as an example, it appears that little progress has been made in this regard :)

Find below two quotes from the speaker, which provide insight into the perspective of those who aim to manage our finances in the 21st century: “The blockchain technology is simply a protocol for managing a database, with varying permissions for who can write to and read from it.” and “In my view, a cryptocurrency is merely a speculative asset, similar to a baseball card.” No further commentary is necessary, I guess.

In regards to Mr. Weller’s proposal, it states: “… certain personal information is required to safeguard against anonymous trading, which has the potential to facilitate money laundering.” Of course.

However, Mr. Waller also highlighted some positive aspects: “… surveys have shown that between 12% and 20% of adults in the US have owned, traded, or utilized cryptocurrency assets.” This indicates that if restrictive regulations are implemented sooner rather than later, there could potentially be up to 52 million individuals who will be pissed off with the outcome.

The University of Michigan released the February Consumer Sentiment Index on Friday. Despite a rise to 66.4, up from 64.9 in January, it remains at a decade low and over 22% below its average since 1978. This suggests that consumers are likely to be more cautious with their spending in the future.

However, traders once again disregarded macroeconomic conditions in their positioning. As a result, the NASDAQ remained above 11,700 (opening at 11,714, closing at 11,718) while Bitcoin followed suit (opening at 21,767, closing at 21,724).

The focus of traders in the coming week will be on the yearly update of the Core Inflation Rate released by the Bureau of Labor Statistics on Tuesday. The consensus is that the core inflation rate will decrease to 5.5%, down from 5.7% in December. Additionally, the January Retail Sales update is forecasted to increase to 1.6%, a turnaround from the previous month’s -1.1% decrease. The Producer Price Index is also foreseen to increase by 0.4%, compared to the previous reading of -0.5%.

In general, traders are expected to adopt a cautious approach leading up to February 14, as they anticipate significant price movements based on the data released by the BLS.