New week begins on a negative note; the Friday relief across the US equities, and which was put on the back of Jerome Powell saying that the bigger rate hikes are off the table for now, couldn’t prevent the Dow Jones extended losses for the seventh consecutive week, the longest losing series streak since 2001. Nasdaq fell near 3% and the S&P500 ended last week near 2.5% lower, at the cusp of the bear market.
DataTrek estimates that the S&P500 would need to fall to 3525 level to ‘discount the 50/50’ odds of recession. And odds of recession are mounting. Goldman Sach’s Blackfein said that the chances of recession in the US is getting ‘very, very high’ and Goldman Sachs cut its American growth forecast to 2.4% from 2.6% this year, and from 2.2% to 1.6% for next year.
As a result, the broad-based recession talk is the major catalyzer this Monday.
Activity in US and European futures hint that Friday’s rebound was certainly nothing more than a dead cat bounce.
Recession worries and soft energy prices will likely weigh on the FTSE index, despite a relatively cheap sterling.
Russia is not happy
In the energy markets, the barrel of US crude trades below the $110 mark on recession worries, but the mounting geopolitical tensions in Europe will certainly limit the selloff.
Finland and Sweden, who have been neutral so far, are now willing to join NATO. Plus, Germany decides to cut the Russian gas to the end of the year, if the Russians don’t turn off the tap before that. And the EU is expected to reveal its latest plan about how to reduce its energy dependence. All this to say that the geopolitical tensions will likely keep the oil bulls alert, but clearly not as aggressive as a couple of weeks ago, as the recession worries now loom, and weigh on the energy rally.
Still, iShares Diversified Commodity index rebounded fast since its dip last week, as the narrow supply will continue playing in favour of higher commodity prices in the coming months.
China could be a gamechanger for the recession worries
…if the government decided to stop its unnecessarily costly Covid zero policy. One good news is that Shanghai people now see the light at the end of the tunnel, as the lockdown measures could finally be lifted by the end of this month, if there are no new cases detected, but the risk of similar measures in other big cities, including Beijing are omnipresent.
The Chinese central bank cut the interest rates for new mortgages to boost the housing market and the slowing growth. Let’s hope the Chinese stimulus does a better impact than the rest of its economic and public health policies!
Bitcoin shrugs off the Terra stress
Bitcoin and Ethereum shrugged off the stress of the Terra dollar’s collapse last week, and stabilized above the $30K and the $2000 respectively over the weekend. The consolidation means that the trust in major cryptocurrencies hasn’t been damaged by the Terra incident, yet it’s likely that investors would become pickier when choosing a token to invest in, as the Terra’s collapse showed that the cryptocurrencies, no matter how popular they are, are not risk free.
Moving forward, the major cryptocurrencies will likely benefit from the protection of a strong support. This could lead to a divergence within the industry, and maybe some sector-wide safe haven flows toward Bitcoin and Ethereum.
However, Bitcoin is still far from becoming a haven asset, in proper terms, and it will certainly continue trading parallel to risky assets. Therefore, if we see the equity meltdown extend this week, we could well see Bitcoin slip and consolidate around the $25K, tested last week.