Episode 24: Freeway Expert Insights
Welcome to our expert weekly analysis on all the major market moves, news and opportunities that will shape the week ahead.
Stock markets are heavily underwater this week, after being driven lower since last week’s FOMC meeting and rate hikes by the US Federal Reserve. Crypto sunk lower too after targeted attacks on alts and Bitcoin wreaked havoc in the markets. So how should investors navigate the choppy waters all around?
See what our experts think as they raise a periscope on the week ahead.
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We may not actually be told policy has U-turned when it already has…..huge data print day ahead.
But first a word on crypto.
LUNA was targeted and broken, MSTR US and Michael Saylor are being targeted too. The options markets are now seeing trades pricing a 96% fall in the shareprice to hit c. $10 vs $225 close last night. They are clearly betting that MicroStrategy’s massive, largely debt financed Bitcoin holdings will face margin calls and a mass dumping vortex dynamic, should the mid $20k’s and below be achieved in the main crypto price. I believe Saylor himself has said MicroStrategy can survive Bitcoin prices < $4k.
That’s the crypto world right now, but as ever to the main markets and what these targeting strategies have to see happen in order for their bets on MicroStrategy to ultimately pay off. I just cannot see it happening.
This week, and for the next few weeks, the only real macro financial markets are going to get is the US CPI inflation print later today. You’ll be reading this ‘Alpha piece’, after the event for clarity.
Expectations are for a US CPI reading +8.1% YoY vs +8.5% prior print, so the market is fully prepared for a ‘this has now peaked’ narrative, as Goldman’s chief strategists told clients earlier in the week that they think inflation indeed has peaked in the US.
But I think the real question now is, how fast is this now about to roll? Not whether we have seen inflation peak or not.
On that point, I do not think the market is anywhere near prepared for the speed at which inflation could likely pull back in the coming months. If this view is close to being correct, then all the bets being placed, in the hope of risk off falls from these levels (and crypto correlated bets etc), are as they say ‘OFF’
Of course one has to acknowledge the inverse, should CPI come in ‘hotter than expected’.
Since last week’s FOMC meeting, when the market reaction was all bullish excitement, and then quickly turned to freak out within 24 hours in a risk off aggressive reversal trade, because FED Chair Powell wasn’t hawkish enough. What we have seen since is a deluge of other FED governor speakers in the last 48 hrs come out en-masse, and completely come across as united in their view, that Powell’s message on hikes, was completely correct. A FED pushback against the markets read in other words.
This messaging has manifested in a fixed income market that has completely reversed the panic risk off trade, but what is notable, and an anomaly to soon be corrected in my view, is that this fixed income move has YET to be reciprocated in the positive way it should be, in equity markets and, by default therefore, in the crypto markets.
Fixed income WINS vs Equities (crypto). So keep this in mind.
If the CPI today comes in line with expectations, +8.1% or very close too, within 10bps or so, we could very well see indecision and further ‘chop’ out there. BUT I would draw attention to China from a structural perspective on this.
Overnight, the latest Chinese inflation data prints came out. Obviously such data points from China are impacted by the disastrous Covid zero policy, but what is notable is how the core readings (ex-food and energy) came in far lower than expected, with CPI +0.9% vs +2.1% headline number. What is relevant to US data, is the high correlation between the Chinese PPI (producer prices) and the US CPI relation.
I highlight this relationship below and of course draw the conclusion that Chinese PPI is a leading indicator to US consumer prices. My view and extrapolation being, how Chinese PPI is structurally coming lower, and thereby by default so too is US CPI, with all that means in terms of FED policy market positioning and so forth, elaborated on above.
There is quite literally no one I know of (in multiple asset classes) with a BULLISH mindset at all.
We all know the fear factors. China shutdowns, inflation unhinged, Russia/Ukraine, policymakers have lost all control, liquidity withdrawal on steroids, recessions, dearth of liquidity = seizure of credit markets, and so on and so forth. I can show this crudely represented in the bull sentiment index below, which hovers near historical lows.
So it’s left to hammer home how important today’s CPI data point is to virtually EVERYTHING in financial markets, including crypto of course. I think these next two charts are very interesting and indicative of a turning of the monetary policy ‘worm’ that is actually already underway, and with so many unaware of it.
As I have already highlighted nominal rate moves, below you can see in conjunction how…….
Firstly, US rate hike expectations have pulled back notably from c. 3% by Dec 2022, when markets tantrumed post Powell last week, to c. 2.7% now.
Secondly, if we look at the financing conditions index (that Powell mentioned again and again in his presser), the current tightness of general financial conditions is in an area he has U-turned at in the past.
If this CPI print misses +8.1% YoY expectations? With momentum on inflation markers to the downside becoming more evident? We could already be there re: U-turning on tightening policy without actually having to be explicitly ‘told’.
It is a huge day ahead and that is no understatement. You will read ‘Alpha’ after the actual CPI print. If I am correct, you can extrapolate above. But if I’m incorrect and the inflation print actually is higher, well sad to say, read the inverse above.
Until next time.
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In a second consecutive week, market participants put the spotlight on the US economy as on the data front, and investors now await US Consumer Price Index on Wednesday, as well as the US Producer Price Index and the US initial jobless claims, which are expected to be released on Thursday.
Also, markets will be waiting for scheduled speeches by policymakers in the European and the US to give extra hints on future monetary policy paths in the middle of this week.
After Wednesday’s much anticipated Federal Open Market Committee (FOMC) meeting for May, the US Federal Reserve announced a 50-basis point hike, which is an unusually forceful move and was its largest increase since 2000. Expectations had been growing for a more aggressive rate increase from the Fed to deal with the surging inflation, which is running at levels not seen for 40 years. However, on Monday, Atlanta Fed President Raphael Bostic said that he considers a 75-basis point rate hike not a possible scenario.
Across the pond, the Bank of England also raised its interest rate by 25-basis points to 1% as it handed down its rate decision on Thursday, in an effort to tame inflation.
On Tuesday trading, the US Dollar stabilised marginally lower from its two-decade high as traders reassessed the possibility of more aggressive Federal Reserve rate increases. Specifically, the US Dollar Index, which tracks the greenback against a basket of six other currencies, inched lower at 103.60 near its fresh 20-year peak of 104.19 hit yesterday. The single currency traded 0.1% higher at $1.0563 against the greenback, still close to its 5-year low of $1.0469.
Elsewhere, USD/JPY revised almost 1.00% lower to 129.96 from its fresh 20-year high of 131.32 hit yesterday, as the 10-year Treasury yields reached a new 3–1/2-year high of 3.203% as inflation fears continued to roil markets.
AUD/USD posted some gains on Tuesday, but the pair is still trading marginally below $0.7000 at $0.6955.
Short positions below 1.0960 with targets at 1.0340 & 1.0100 in extension.
Above 1.0960 look for further upside with 1.1185 & 1.1280 as targets.
Short positions below 1.2820 with targets at 1.2200 & 1.2075 in extension.
Above 1.2820 look for further upside with 1.2975 & 1.3180 as targets.
Our algorithmic trading experts and streetwise quant traders examine the week ahead in crypto.
We’re on the precipice of ugly, and this is the perfect time to buy.
The funding situation has arguably gotten worse https://www.binance.com/en/futures/funding-history/4
We hit below 35k and then some, and we hit 30k. Is this the bottom? That’s a solid maybe. There is an absolute certainty we will see a reversal from this dump at some point, despite people calling for lower. Probably 34–35k. I see significant demand at 28k, even. It’s been quite a while since my charts flagged reversal.
Total2 (see below) shows we’re in the same boat. “We’ve dived too deep Cap’n”. While it’s ugly and bearish, it will probably reverse somewhere soon. No time frame yet.
BTC Dominance (see below) has shown us that it will go up at some point, so that means maybe alts sit while BTC goes up. Given the status of the market, people may lose faith in alts vs btc.
Defi continues to just swan dive (see below).
Have I mentioned shorting the market?
Notable events outlook
War continues to heat up. The US signs the Ukraine lend-lease act. Russia unleashed a cyberattack. Ukraine pushes Russians back near to their border. China is prepared to take over Taiwan by force, which will provoke world war and possibly override the market. .
Prior opportunity followup
$ALGO, $XMR, $BAND. $ALGO is in a waiting period and/or just potentially hit short. Not sure I’d stay in that one too long. $XMR swan dived, people should be up 20%. $BAND hedge successful, could close short any time and sit on the long for free money for whenever it goes back up, or repeat from here.
Stop, stop, stop it longs.
$ZIL ($0.0695c): I don’t know what people see here. Zil kinda sorta could bounce, but it could also go down to 1c. Short wherever, just keep a stop tight around 8c. Alternatively, short at 8c down to 6c and below.
$UNFI ($2.874): In negative price discovery. Short that down to whatever, stop at 3.80, start small and scale in during profits. UNFI is dead and so is the ponzi it represents.
$BAT ($0.47). Many people got BAT because of the free browser ads, and later realised it wasn’t worth the money (though the ad blocking is nice). After the world’s biggest head & shoulders I would say that a hedge is ideal here, and expect to close the short side around 19c (to feed the long with the profit), or close the entire position above 66c on the short side to run the long up.
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