Well, were at the end of another interesting week of trading. We started the week with some poor Chinese trade data, coupled with a back track on rumours from the previous week that covid restrictions would be loosened which kicked us off with a slightly negative start but the action for the week was never going to be between Monday-Wednesday, or so we thought.
What Happened to Cryptocurrency Markets?
The cryptocurrency markets have been in meltdown this week, going with the trend of this year but accelerated lower after reports that the balance sheet of a Cryptocurrency hedge fund which is owned by the founder of the Crypto broker FTX, Sam Bankman-Fried. The report told us that the fund held billions worth of the brokers own token, FTT, and was using this as collateral in other types of loans. With that being the case then a drop in the value of FTT would have seriously damaged both businesses as they are effectively owned by the same person. FTT itself has no value other than FTX’s promise to buy the tokens at $22, meaning that it wasn’t the strongest of business models when you break it down.
This then caused chaos when Binance’s chief executive Changpeng Zhao tweeted that his company were going to sell their holdings of the token due to ‘recent revelations that have come to light’.
Things got ugly from here, the value of FTT had dropped a total of 95% at one point on Wednesday and there were mass withdrawals from the broker totalling £5.1B over the course of 3 days while the usual amount would be in the tens of millions. Ripple effects across the board on Cryptocurrencies meant that Bitcoin was down 25%, Ethereum was off 31% and no matter where you look, there’s been a bloodbath across the asset class. At the time of writing BTC sits at $17300 and ETH at $1280, both off the lows of the week.
Bankman-Fried is now seeking $9.4B to save the company and is now facing an SEC probe into his Crypto empire. BlockFi have halted client withdrawals and FTX have said trading may be halted in a few days, but they continue to honour withdrawals. Not sure I’ll be contributing to the $9.4B to save the company anyway.
With un-regulated brokers, this is something that can happen though unfortunately, and makes you feel bad for the normal people with no clue about the asset class having invested this time last year, having lost the majority of their money. There are reports of teachers pension funds in America and Canada losing millions, as well as Tom Brady and his ex-wife Gisele Bundchen losing a chunk of their fortune along with many celebrities who have been endorsing these products over the past couple of years. Manage your risk and do your own research I would suggest.
Onto the CPI print now in more regulated markets, which was about as crazy of a move as you will see anywhere on any week. The Nasdaq finishing 7.5% up was arguably the craziest of it all. The USD’s biggest 1 day drop in 10 years, Cable’s biggest rise since 1998 and the S&P finishing 5.5% up were the highlights to say the least. The US 10 Year Yield is now firmly below 4% and looks primed for a test of 3.6% if this weeks moves are to be continued into next week.
The CPI prints yesterday seem to show a potential peak in inflation, and seemingly confirms a 50bps hike in December. However, I can’t help but feel it has been slightly overcooked though. Yes, the YoY CPI (inc. Food and Energy) is down 0.5% from 8.2% to 7.7% and the YoY Core CPI (ex. Food and Energy) is down 0.3% from 6.6% to 6.3% but when you look a little closer at the MoM figures, the Core CPI is still up 0.3% for the month of October which would be 3.6% if it was to continue at this pace for the year. Shows a bit more needs to be done on that front.
However, if markets stay bullish and risk sentiment remains firm then it doesn’t matter what I say, we won’t really know if this is the peak for another month or 2 anyway. Long stocks, short the Dollar and long Bonds are seemingly the trades at the moment.
That 10 Year Yield needs to be looked at for direction into next week. Yields lower, USD lower and stocks higher, vice versa if it goes the other way. Pretty simplistic view of it, but that is the trade into next week, I think. Caution is needed though. Veterans Day today in the US, bond markets are shut but Wall Street remains open, so next week is where we get a true reflection on whether this has legs or not.
All in all, a pretty crazy week. Cryptos slammed and potentially the peak of inflation. Will be interesting to see if these moves continue into next week.
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