SVET Markets Weekly Update (Feb 13–17, 2023)

18 Feb 2023 by rate3

Week 8 developed as anticipated on the NASDAQ side, with the opening at 11,759 and closing at 11,787. Traders found themselves in a state of indecision due to contradictory fundamentals. However, BTC showed surprising agility, gaining a solid 15 percent, with the opening at 21,572 and closing at 24,820, revealing the whales’ big tactical play.

Week’s wrap-up:

Inflation Rate (Jan, yearly): 6.4 percent (fact), 6.5 (consensus);
Core Inflation Rate (Jan, yearly): 5.6 percent (fact), 5.5 (consensus);
Retail Sales (Jan): +3 percent (fact), +1.8 (consensus);
NY Empire State Manufacturing Index (Feb): -5.8 (fact), -32.9 (consensus);
NAHB Housing Market Index (Feb): 42 (fact), 37 (consensus);
PPI (Jan): +0.7 percent (fact), +0.4 (consensus);
Initial Jobless Claims (Feb 11): 194K (fact), 200K (consensus).
On February 12, the New York Department of Financial Services (NYDFS) issued an order to Paxos, a digital asset trust company, to cease creating new Binance USD (BUSD) tokens. According to the regulator, there were several unresolved issues related to Paxos’ oversight of its relationship with Binance, which necessitated this order. The order implies that Paxos is not currently in compliance with the regulatory requirements set forth by the NYDFS in terms of its oversight of its relationship with Binance.

The order means that Paxos will no longer be able to issue new BUSD tokens starting on February 21. Furthermore, it will also end its relationship with Binance for the branded BUSD stablecoin. Paxos had reported $16 billion in holdings, and this decision will undoubtedly have an impact on both the company and the market.

Monday’s market reaction to the news was mixed, with BTC falling during the day’s session (open: 21572, close: 21662) while NASDAQ added 1.1 percent (open: 11759, close: 11891).

On Tuesday, Bureau of Labor Statistics reported January’s Core Inflation Rate (the primary measure of inflation for goods and services purchased by consumers, excluding volatile food and energy) decreased for the fourth consecutive month to 5.6 percent year-on-year. This value represents the lowest rate since December 2021 but it surpassed market projections of 5.5 percent and persisted above the target set by the FED.

Additionally, The NFIB Small Business Optimism Index increased to 90.3, rebounding from its six-month low of 89.9 in December. However, the index remained below its 49-year historical average of 98. Still, the most significant challenges facing small business owners was inflation, cited by 26% of respondents as the top concern and difficulties in filling job openings (+ 4 percent), reported by 45% of small business owners.

Nonetheless, it did not prevent traders from celebrating Valentine’s Day by increasing the NASDAQ by +1.28 percent (o: 11,808, c: 11,960) and recovering BTC after the Poxos-Binance episode from the day prior, with a gain of +2.45 (o: 21,719, c: 22,252).

In the “technicals against fundamentals” war the former prevailed over the later on the Wednesday trading session, again. NASDAQ added 1.4 percent (o:11905, c:12070) while BTC jumped 6.3 (o:22698, c:24145) closing over 24K. Most of the rise came just before a closing bell revealing some individual whale’s big play.

It was helped by the Census Bureau reported that January’s retails sales were $697.0 billion, or up 3 percent from the previous month (not adjusted for inflation). This number well overshoot market analysts forecasts of 1.8, The biggest rises were seen in department stores’ sales (+17.5 percent) and food services (+7.2). That was added by the February’s NY Empire State Manufacturing Index climbing up to -5.8 in February, beating market expectations of -18.0 and the NAHB Housing Market index increasing to 42 (forecasts were 37) on the same month.

On Thursday’s trading session, bears attempted to take revenge inspired by the Bureau of Labor Statistics’ report on producer prices, which jumped by 0.7 percent, notably higher than the 0.4 percent forecasted by market analysts. However, their efforts didn’t go far. The NASDAQ stayed at its opening levels (open: 11896, close: 11855), and BTC briefly rose above 25K before starting to test the 24K support level in after-hours trading.

With the PPI showing the largest monthly increase since it rose 2.1 percent in June 2022 (led by a 6.2% surge in gasoline costs), the Philadelphia Fed Manufacturing Index plunging to -24.3 in February (compared to a forecast of -7.4), and Initial Jobless Claims as of February 11th at 194K (instead of the predicted 200K), traders have little macroeconomic positivity left to fuel the bull rally.

Friday’s early trading session showed that the markets initially reacted negatively to a remark made by Thomas Barkin, the president of the Federal Reserve Bank of Richmond and a former CFO at McKinsey, who stated, “I’m not taking as much signal from the data that we’ve gotten recently.” However, the bullish momentum ultimately prevailed, and the NASDAQ managed to close the day in the green (opening: 11777, closing: 11787), with Bitcoin adding another 4.4% (opening: 23783, closing: 24820).

This reinforces my earlier assumption that the current bull run is being spearheaded by several large players who are firmly set on extracting as much value as possible for their individual portfolios, which is arguably short-term. This bullish momentum remains largely unsubstantiated by fundamental factors and is mostly based on the “push” of technical indicators, which have been propelled further than expected by Powell’s “disinflation” comment.

Technical indicators suggest that there is still an appetite for high-risk assets among some institutional investors. It is not yet clear whether this sudden demand from large players is purely speculative or driven by a long-term strategic investment strategy.

Meanwhile, the resulting macroeconomic situation is complicated, to say the least. While there are some disinflationary tendencies, surprisingly strong consumer demand, and post-pandemic recoveries in some economic sectors, these may soon be undone by growing recessionary risks and the Fed’s hawkish overreaction to continuing service-side price rises, coupled with an inexplicably strong job market. Not to mention the highly volatile geopolitical climate. Overall, this makes the current market positioning a work of art even for experienced traders.

The prevailing expectation for next week is that the release of Tuesday’s FOMC minutes might shift markets downward if it reveals a strong hawkish consensus among members. Friday’s Core CPI release might also add more negative momentum. However, from a technical standpoint, NASDAQ still has unrealized upside potential. The BTC market is less certain, as the players behind the recent surge might not find the FOMO support they expect to rise, and may be forced to self-correct.