PRO Market Keys Of The Week: 1/30/2023
This is the first weekly installment of certain data and charts that are piquing our interest. We analyze some important economic metrics that readers should keep an eye on in the week ahead.
Relevant Past Articles:
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What We’re Watching
This is the first weekly installment of data, charts and trends that we’re watching closely. This is in addition to the long form market research and analysis we will continue to publish twice per week along with the new PRO Market Dashboard. We hope you find this brief overview useful to start the week.
“Higher For Longer” View
The market underestimates the “Higher for Longer” view. With the FOMC meeting notes being released this Wednesday, the market is pricing in a nearly 100% chance of a rate hike this month with an 89% chance of another 25 basis points in March. Data shows that investors think there will be a significant cut in rates beginning in the second half of 2023 and many market participants anticipate inflation returning quickly back to 2% in a soft landing scenario. That being said, a tight labor market spurring rising wage pressures, increasing gasoline prices and China’s inflationary reopening, abating the current runaway inflation is not so clear cut.
Dollar Strength Coming Back And Volatility Compression
After months of relative U.S. dollar weakness and market volatility compressed at local lows, we’re likely due for another reversal. Bitcoin has acted as an inverse VIX and moved counter to dollar strength in the short-term. This latest rally has existed during a prolonged period of a declining DXY, lower equity volatility and lower credit volatility as seen through the MOVE index.
Bitcoin Price At Range High And Below 200 WMA
We’ve seen some strong momentum in the recent rally to convince investors that this is the beginning of a new bull market. Yet, bitcoin price is still range bound (currently near range highs) and below the 200-week moving average price of $24,764. Relatively strong correlations with high beta are still holding with the S&P 500 index at a major inflection point yet again. Major data releases for U.S. Consumer Confidence and ISM PMI this week alongside central bank rate policy decisions across the United States, England and the EU will likely be the catalyst for a mean reversal lower.
Bitcoin ETPs Significant Investment Flows
Vetle Lunde’s work at Arcane Research tracking monthly flows for bitcoin investment vehicles shows the largest 1-month increase since March 2022. CoinShares research shows the same trend with last week having the largest 1-week of USD inflows ($115.6 million) since July 2022. Institutional buyers have been increasing their bitcoin exposure here.
Source: Vetle Lunde, Arcane Research
U.S. Economic Data Deteriorating
EPB Research’s Eric Basmajian breaks down the coincident economic data that NBER tracks to determine recessions. The growth of that data is now contracting on a 3-month basis — recessionary territory. These are the first signs of the recession kicking off in 2023 if the contraction is to persist across real personal income, industrial production, total nonfarm payrolls, employment levels, real retail sales and real personal consumption.
An early 2023 recession would be counter to the idea of a deep recession forming in late 2023 into early 2024. One of the best recession indicators, the inversion of the 3-month and 10-year yield curve, flashed in October last year. Historically, there’s a higher probability of a recession forming 12-18 months after that initial inversion.
Bitcoin has faced several major market corrections of 70%-plus drawdowns but has never faced a pending recession of this magnitude.
Source: EPB Macro Research
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