Market Commentary – October 14th, 2022

Crypto Market

At the time of writing, Bitcoin is trading at $19,400 USD and Ethereum at $1,315 USD. Recent weeks have seen an uncharacteristically low degree of volatility in Bitcoin prices, in stark contrast to equity, credit, and forex markets, where central bank rate hikes, inflation, and a strong US dollar continue to wreak havoc. Against in this macro backdrop, Bitcoin has been remarkably stable and has gained ground against many assets on a relative scale.

The crypto space was rocked last week after bankrupt crypto lender Celsius revealed the names and transaction history of hundreds of thousands of its customers in a court filing. That data has now become the basis for an independent online tool that enables anyone to search for the names of Celsius users and view how much they lost. Celsius has faced significant backlash, with many highlighting the fact that its users’ on-chain activity can be doxed by matching dates and amounts to transaction data. It’s a vivid reminder of just how public blockchain transactions are.

According to Arcane Research, the open interest (O.I.) volume for perpetual Bitcoin swaps spiked to an all-time high of 450,000 BTC. Perpetual swaps are the most popular leveraged trading contracts offered by cryptocurrency exchanges like Binance and FTX. It suggests that the market can expect heightened volatility levels shortly.

Macro

Last week’s jobs data offered few, if any, signs of slack in the labor market, and the workforce growth was moderate at best. The unemployment rate unexpectedly fell to 3.5%, an optic that makes it hard for investors to get behind any narrative calling for a pause in rate hikes. Earlier this week (Wednesday, October 12th) showed the US Producer Price Index (PPI) for final demand increase by 0.4% instead of the expected 0.2%.  The PPI is used  in business and government as a measure of wholesale inflation and is seen as a leading indicator of increases in consumer prices. 

Markets are nearly fully pricing in another 75 basis points Fed rate hike in November after the upbeat Nonfarm Payrolls data. The FOMC September meeting minutes were released and they mentioned that the Federal Reserve favored reaching restricted rates in the near term and staying there as long as necessary. The US Bureau of Labor Statistics published the Consumer Price Index (CPI) data for September on Thursday, October 13th. The CPI print is viewed as  important data point to gauge if inflation is slowing down or not. The September core CPI posted another gain of 0.6% month over month, topping estimates. The composition of the increase offered no immediate reason to hope for a quick reversal in rate hikes. Much of the upside disappointment was due to shelter costs, which continue to accelerate, posting the largest monthly gain since 1990.

The International Monetary Fund (IMF) met this week in person for the first time since 2019. The IMF cut its economic outlook for the world, to 2.7% for 2023, down from 2.9% in its July outlook, underscoring the volatile situation as policy makers wrestle with inflation, mounting poverty, and the risk of debt distress.

Equities, Fixed Income, FX and Commodities

Equities

Earnings season is kicking off now, and it’s an opportunity to see what executives make of prospects of higher-for-longer rate hikes. While we know that rate hikes can only bring down inflation with a lag, they can start to hit sentiment right away. Advanced Micro Devices already warned that Personal Computer demand is weakening significantly. That will probably have some carry over for Microsoft and Apple, who report later in the month.

Fixed Income, FX and Commodities

The Bank of England intervened in the bond markets again Tuesday and warned of a “material risk” to U.K. financial stability. The U.K.’s central bank said it will widen its emergency bond buying, to include index-linked gilts—bonds with borrowing rates linked to inflation—through to Friday in a bid to restore orderly market conditions. It’s the bank’s second attempt to calm the markets already this week.

The U.S. dollar continued to show its strength after Treasury Secretary Janet Yellen said a strong greenback is the “logical outcome” of varying global monetary policy paths. The dollar hit a new 24-year high against the Japanese yen Wednesday.

News we’ve been reading

Disclaimer

This confidential presentation has been prepared by Coinsquare Ltd. (the “Company”) solely for information and/or educational purposes. It shall not be construed as investment advice. Information contained herein does not purport to be complete and is subject to certain qualifications and assumptions and should not be exclusively relied upon for the purpose of making any investment or entering into any transaction in relation therewith. Neither the Company nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this presentation by you or any of your representatives or for omissions from the information in this presentation. The information and opinions contained in this document are provided as at the date hereof and are subject to change without notice and, in furnishing this document, the Company does not undertake or agree to any obligation to provide recipients with access to any additional information or to update or correct the document. This document has not been reviewed or approved by any securities administrator in any jurisdiction. This presentation or the information contained herein is not to be given to any person other than the person or group that was provided with the presentation directly by the Company or their advisors and is not to be reproduced in any manner whatsoever. Any further distribution or reproduction of this presentation in whole or in part, or the disclosure of any of its contents by the recipient, is unauthorized. Interested investors are not advised to rely solely on this document in forming investment decisions and are strongly advised to conduct further due diligence by requesting additional information from the company before making any such investment decisions. Unless otherwise noted, all figures expressed herein are in Canadian dollars. Coinsquare Wealth advisors cannot provide investment advice.

Forward-Looking Information 

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