Contributed by Tedtalksmacro
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Ahead of today’s trading, get up-to-date with the macro-drivers of traditional and cryptocurrency markets. This is not, in any way, financial advice and should not be considered as such.
Bitcoin has broken out of its multi-month consolidation between $30-45k USD
Since the last edition of my newsletter or ‘outlook’ on global markets, investor risk-appetite has been buoyed and that has impacted equity and cryptocurrency markets most significantly. Bitcoin has risen to trade as high as $48,500 USD and the S&P500 recently tested the 4630 handle.
Being the contrarian and removing emotions when markets were in ‘free-fall’ during Q1 2022 was key – which is easier said, then it is done. If you were able to see through the market’s emotions, and instead let the data guide you – you’d have been following along with me and should hopefully be reaping the rewards right now.
It was clear the bears became emotionally attached to their bias, whilst those who ‘bullieved’ and who were maybe a little less emotional after ~four months of risk capitulation, were ready to capture the move higher.
The catalyst for a shift in risk appetite was the March FOMC meeting, which had been eagerly anticipated by bears and bulls alike. Headed into the meeting the market expected a 25 basis point (bps) hike from the US Federal Reserve and that is exactly what it got at the event.
What the market didn’t expect however, was that the projection material and the initial commentary would be extremely hawkish – as hawkish as the Fed could have possibly been (which is bearish for risk assets like Bitcoin!)
Despite the potentially bearish-risk written material, the market managed to rally and ‘buy the news’ – a sign of what was to come. Fed chair Jerome Powell also provided some reassuring commentary which no doubt helped support risk-sensitive assets like crypto and stocks.
Since March 16, investor risk appetite has enjoyed a long-awaited leg higher. War talks have been ‘priced in’, Biden’s executive order on digital assets was surprisingly tame and the future path for action on monetary policy by the US Federal Reserve is now much clearer than it was prior to the March FOMC meeting, all these developments are positive for risk.
US equities have been buoyed by a renewed appetite for risk since the March FOMC
Markets, they rotate higher and they rotate lower – fuelled by buyers and sellers who are sometimes forced into taking action when they may not necessarily want too!
The next ‘macro’ event that is set to force market participants to evaluate their long-term positioning is the US Consumer Price Index (CPI) data print for March.
This metric will likely tell us that March 2022 saw one of the highest inflation prints in recent history – owed to the peak of the geopolitical conflict in Russia/Ukraine and also to the
somewhat irresponsible ‘money printing’ by the Fed in 2020 and 2021.
This data will reinforce the need for tighter monetary policy in 2022.
Tighter monetary policy means that it will be more expensive and more difficult to obtain cash and to therefore take risk. So long as strong economic data is observed in the US and across the world, the market will remain convinced that central banks will continue to hike rates and tighten their policy to counter-act persisting inflationary pressure.
Fed target rate probabilities for May 2022
The market is yet to full price in 50bps hikes in both May and June this year – but is in the process of doing so right now. By the time such hikes are priced in, I’d expect major US equity indexes to be ~5% lower and I’d be surprised if such a move in equities, doesn’t drag negatively on the cryptocurrency market in the short term.
Fed target rate probabilities for June 2022
Bulls have been strong and bears remain in disbelief. But there’s no doubt that the potential macro catalysts that lie ahead must be considered by the bulls – even if it is only to take a little bit of profit before the next leg higher!
I’ll be staying nimble in what is definitely a trader’s market!
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