Market Commentary – October 27th, 2022

Crypto Market

At the time of writing, Bitcoin is trading at $20,700 USD and Ethereum at $1,575 USD. According to Glassnode, there has been a marked shift in balance change behaviour by most Bitcoin wallet cohorts. All ranges of Bitcoin holders from less than 1 BTC to Whales (up to 10k BTC) have altered their behaviour from one of net balance decline and distribution (selling their Bitcoin), and towards one of net accumulation and balance increase (buying Bitcoin). This suggests that market participants consistently have a tendency towards buying and  accumulation at range lows.

Glassnode’s data on crypto trading platforms also indicates that the 30-day netflow of BTC and ETH has been withdrawals, and simultaneously, an excess of $3B/month in stablecoins have flowed into trading platforms, increasing relative buying power. In summary, this means USD reserves are increasing, whilst coin available to buy is declining in Crypto Trading Platforms.

The number of active BTC and Ethereum addresses remain below record highs seen in June, but the metric is more resilient in 2022 compared to 2018. Finally, Google searches for ‘crypto’ & ‘bitcoin’ have reached their lowest levels since early 2021. Despite subdued attention from retail investors, institution interest in crypto remains high. For example, Investment firm AllianceBernstein said institutional investors continue to build out digital asset strategies despite the crypto market sell-off this year.

Macro

The Federal Reserve is still laser focused on inflation, which remains too high. But interest rates famously act with a considerable time lag—one shouldn’t expect the latest series of rapid hikes to have a real impact on price gains for a few months. Nevertheless, another 75 point rate hike is in the cards for next week. The good news is that other central banks are starting to ease up a bit. Australia has already slowed rate hikes. Canada delivered a smaller-than-expected increase (50 bps instead of 75 bps). The European Central Bank is just getting warmed up, but will surely slow down again soon.

In the United States, sales of new single-family homes fell 10.9% in September from the month prior, to a seasonally adjusted annual rate of 603,000. Although better than analysts expected, the decline—coupled with mortgage rates that topped 7% last week—has made buying a home more expensive. The Mortgage Bankers Association’s volume of home purchase loan applications last week was 42% lower than the same week in 2021, and fell about 12% over September, a sign of the continued pullback from higher mortgage rates.
This morning the ECB increased rates by 75 bps as expected. Despite signs of Central banks across the globe slowing their pace, the ECB expects to raise interest rates future over the next sewerage meetings, deciding meeting by meeting. They did not mention anything about quantitative tightening.
US Q3 Annualized GDP numbers came out at 2.6% versus the expected 2.4% which officially moves the USA out of a technical recession. Personal consumption came out at 1.4% versus 1.0% expected. The Core Personal Consumption index was 4.5% as expected. While market participants will be happy about the GDP numbers, this may also give the option for the federal reserve to be more aggressive with rate hikes in the future given the stronger economy.

Equities, Fixed Income, FX and Commodities

Equities

With earnings coming along over the last week, the tech sector has been hit harder than most. Meta shares (META) are down nearly 20% in premarket this morning  after the Facebook parent’s earnings and revenue fell short of hopes, with similar results for Alphabet (GOOGL) and Snap’s (SNAP). Wall Street downgrades are trickling in. After the close today, in addition to Apple and Amazon.com, Intel (INTC) and a few others will report their earnings. 

Fixed Income, FX and Commodities

USD remained on the defensive for a 3rd straight session as markets continued to bet the Fed would slow the pace of its rate hike. US 10-year yield hovered just above 4.0% area. Greenback was off its worst levels by mid-day as yield drifted higher. The EUR/USD extended losses to test parity against the US dollar following the ECB’s meeting by meeting forward guidance and no mention of QT in ECB’s statement. USD/JPY continued to move away from recent 32-year highs. Focus on upcoming BOJ rate decision where markets expect the central bank to maintain it’s its super-easy monetary policy.

News we’ve been reading

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