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Market Overview

US Economy: Goldilocks or Perfect Storm?

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The US economy is operating on all cylinders, and depending on who you ask, it’s either a Goldilocks economy or — if you take a longer-term perspective — the calm before the storm.

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In the current economic environment, where expansion is steady, inflation remains in check and unemployment is at multi-year lows, there’s plenty to cheer. Indeed, US households are experiencing a Goldilocks environment where conditions are neither too hot nor too cold, according to US Fed San Francisco President John Williams.

“I feel this is pretty much a Goldilocks economy. I see this as all pretty positive,” Williams is quoted as saying.

Last week’s headline unemployment number of 3.9% in April coupled with modest wage inflation cemented the Goldilocks conditions, fueling the belief that the Fed will maintain its plan to lift short-term interest rates twice more in 2018.

Meanwhile, Fed Reserve Chairman Jerome Powell on Tuesday suggested that the markets including the U.S. and emerging markets should not be blindsided by the expected rate hikes. Powell calls it “normalization”, adding that monetary policy in the U.S. “should continue to prove manageable” for emerging markets.

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Meanwhile, oil prices are hovering near $70 per barrel, which is another bullish sign for the economy.

Dimon’s Economy

While economists in various circles are painting an optimistic picture about economic expansion and inflation moving toward the Fed’s 2% target, it’s not a big shock that JPMorgan’s chief Jamie Dimon, who infamously denounced bitcoin and banned investors from making cryptocurrency payments via credit card, is thinking about the next recession.

Dimon told Bloomberg: “Somebody asked me once, ‘what are the odds of a recession?’ I said it’s 100%. The question is when.”

To be clear, Dimon doesn’t see another recession of 2007 proportions repeating itself. Things are a lot different this time around, as he pointed out –

  • More people are joining the workforce
  • Housing inventory is low
  • “Much less leverage in the financial system” now versus before
  • Banks are holding two-times as much capital + liquidity
  • Consumer balance sheets are stronger

But when you take a step back, you see that 20% economic growth has unfolded over a nine-year period, which he said explains the tepid wage growth and just wasn’t good enough. “It should have been 40% over a shorter time period,” Dimon told Bloomberg.

As a result, he warns not to get too comfortable.

“America looks pretty good. … It looks like this [economic growth] may have legs to go. Maybe a year, maybe two, maybe more.”

In the interim, he hopes the US economy can maintain economic expansion of higher than 2%. Meanwhile, he points to other economies of the world that are doing better, including Japan, where economic recovery is under way, Brazil and Europe.

As for America, if inflation proves to be rising at a faster rate than anticipated, it could prompt the Fed to raise short-term interest rates more than expected.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 6 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. Full disclosure, she's invested in bitcoin.




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Market Overview

Efficiency in Risk

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Crypto critics and skeptics often like to point out the high use of energy that is consumed by the Bitcoin network. Most proponents, including myself, regularly refute these claims as simply being the cost of doing business.

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The video I’m about to show you isn’t new but it’s something that I saw for the first time today and it blew my mind.

Andreas Antonopoulos is arguably one of Bitcoin’s most recognized names. In this clip, Andreas responds to the question of energy consumption in a rather unique way.

Please watch the video here now. (5:50)

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Not only does he make a comparison between the energy consumption of traditional means of payment but he also explains that the energy arbitrage that is being committed by the Bitcoin network is arguably the most efficient use of surplus energy that might otherwise go to waste.

No doubt, if more and more cryptocurrencies tried to adopt the Proof of Work, mining protocol it could be wasteful, but Andreas believes that at least one is, in fact, necessary in order to maintain the exceptional security of all cryptocurrencies.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Trade War On Hold
  • Efficiency in Oil
  • Ready for Risk

Please note: All data, figures & graphs are valid as of May 21st. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

The US Secretary of the Treasury Steven Mnuchin has announced over the weekend that the trade war between the United States and China is officially on hold.

Speaking on Fox News Sunday, Mnuchin outlined the framework under which the de-escalation is taking place as well as explaining what happened with ZTE and why. Arguably, not a very forthcoming explanation, but that’s probably as good as we’re going to get.

Markets, on the other hand, do not seem to be on hold. Nor are they showing any real signs of relaxation following Mnuchin’s announcement. The most notable move, of course, is the US Dollar, which is flying this morning.

The purple circle here is the weekend gap…

Crude Oil’s Reaction

Strangely enough, crude oil is burning ever higher on the announcement. I can’t personally come up with any fundamental reasons why the Secretary’s announcement should have a positive effect on the price of oil, and that’s after reading several articles that try to make that very claim.

 

If anything, the stronger USD should serve to send the sticky stuff lower. Looking at the price, it becomes a bit more clear. The high of $72 per barrel was actually triggered last Thursday (yellow circle). The gap from the weekend (purple circle) was so weak that we could consider the Trade War news to have had a neutral effect.

Keep in mind that today is Whit Monday in the EU and Victoria Day in Canada, so volumes could be light throughout the day.

Cryptos in Green

The weekend has gone well in crypto-land with all of the 10 tokens listed on eToro rising.

Looking at the landscape, we can easily see that cryptotraders are piling on the risk again. This is apparent by the fact that the most experimental of the bunch, EOS and NEO are outperforming the rest by a wide margin. Whereas two of the most established coins, Litecoin and Dash, have underperformed.

This type of irrational behavior is unfortunately rather typical of financial markets. Both EOS and NEO are far from operating at full capacity and investors see this as an opportunity to get in before “the revolution” takes place. When in fact, it would make more sense to be looking at networks that have already stood the test of time and are in fact growing in their adoption and use.

No matter. the risk/reward slider doesn’t lie. Those who take on greater risks might end up being rewarded for them but if the respective projects don’t end up materializing, prices could come crashing as well. Whereas, the more established networks are less susceptible to those type of wild gyrations.

Risk Efficiency

Interestingly enough, it seems that a similar dynamic is playing out in the traditional markets as well. Here we can see three different ETFs that cover different parts of the market.

White = Russel 2000 – Smallcap Stocks
Blue = S&P Midcap Stocks
Green = S&P Largecap Stocks

Notice how investors are seeking out the extra risk as they speculate that the smaller companies will grow faster than the larger ones.

Wise investors will no doubt keep a diversified portfolio. One that holds a very small amount of ultra-high-risk assets, and includes plenty of different types of markets from crypto to stocks to ETFs and everything else.

Let’s have an amazing week ahead!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 85 rated postsSenior Market Analyst at Etoro.com.




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Market Overview

Weekly Forecast: Economic Data, Post-Consensus Wrap-Up and Zcash’s Gemini Listing

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It’s shaping up to be another active week in the financial markets, as currency and stock traders shift their attention to economic data and geopolitics. Cryptocurrency traders will be looking for clues about the direction of the market following a highly successful Consensus blockchain summit.

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To get a better sense of what’s ahead, we encourage readers to go over latest Week in Review.

Consensus 2018: The Aftermath

The year’s biggest blockchain event was greeted positively by policymakers, academics and industry proponents. However, unlike the previous three years, Consensus failed to spark a sustained rally in cryptocurrency prices.

Though Consensus usually generates double-digit gains for bitcoin during the event, the bulk of the rally occurs long after the summit has taken place. Since 2015, post-Consensus gains have ranged between 78% and 138%. With this precedent in mind, traders will be closely monitoring market activity over the next few weeks to see if price action follows a similar trajectory.

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In addition to Consensus, the blockchain industry is riding a wave of momentum tied to institutional adoption, innovation and sanguine comments from regulatory agencies. These stories have counterbalanced negative headlines concerning fraudulent ICOs and the massive carbon footprint of bitocin mining.

Zcash Lists on Gemini

The privacy-focused Zcash cryptocurrency has been cleared by U.S. regulators to be listed on the Gemini exchange. The exchange, which is led by Cameron and Tyler Winklevoss, began accepting ZEC deposits on Saturday with full trading expected to begin on Tuesday. ZEC values surged to two-and-a-half month highs following the news.

By listing on Gemini, Zcash could enjoy higher liquidity and become a front-runner in the launch of cryptocurrency derivatives products. That’s because Gemini provides pricing data to CBOE, which was the first regulated exchange to launch bitcoin futures. According to some analysts, the addition of Zcash could hasten the production of ZEC derivatives products.

Economic Calendar

Traders with exposure to stocks, currencies and commodities can expect a steady stream of market-moving events throughout the week.

Monday

Three members of the Federal Open Market Committee (FOMC) are scheduled to deliver speeches on Monday, including Raphael Bostic, Patrick Harker and Neel Kashkari. The Fed’s policy-setting board is widely expected to raise interest rates at its next meeting in June.

Fed fund futures prices imply two more rate hikes for 2018, with a third upward adjustment a strong possibility.

In terms of economic data, the Chicago Fed will release the national activity index at the start of New York trade.

Tuesday

The United Kingdom’s House of Commons will hold inflation report hearings on Tuesday. In North America, the U.S. Richmond Fed will release its monthly manufacturing survey for May.

Wednesday

Wednesday is the most active session of the week from a data perspective, with IHS Markit scheduled to release a deluge of PMI reports for Japan, Eurozone and United States.

The U.K. Office for National Statistics will release headline inflation figures, including the consumer price index and producer price index for the month of April.

In the United States, the Federal Reserve will release the FOMC meeting minutes for May.

Commodity traders will be keeping close tabs on weekly crude inventory data courtesy of the U.S. Energy Information Administration (EIA). Crude inventories are forecast to fall by nearly 1.8 million barrels in the week ended May 18.

Thursday

A meeting of the Eurogroup will be in the headlines in the second half of the week, although it is not expected to generate any strong signals about monetary policy. In terms of data, GfK will report on German consumer confidence and the U.K. government will issue its monthly report on retail sales.

The European Central Bank (ECB) will release the monetary policy meeting accounts of its most recent gathering, where officials voted to keep interest rates on hold.

The Fed’s William Dudley and Patrick Harker of the FOMC are also scheduled to deliver speeches.

Friday

Japanese inflation data and the latest GDP figures for the U.K. will headline the economic calendar on Friday. In the United States, a report on monthly durable goods orders will also make headlines.

Federal Reserve Chairman Jerome Powell will participate in a panel discussion on financial stability and central bank transparency in Stockholm, Sweden.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Market Overview

Rome wasn’t built in a day

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As blockchain week in New York winds down, we’re seeing several articles like this one

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What the writers of these articles fail to realize is the underlying principle behind the so-called “consensus effect” and what it’s all about.

This is not “pump” and it was never about speculation or crypto trader exuberance. The theory championed by Tom Lee and others is about the construction of infrastructure.

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During the event, we witnessed a flurry of exciting product launches, new partnerships, groundbreaking initiations, and investment commitments. These are the type of things that tend to have a large impact on market prices, but not instantly.

In the last three years, we have seen that bitcoin stayed flat for weeks after the Consensus conference and then took off about a month later. This graphic does a rather good job of displaying the delayed fuse…

Our CEO and co-founder of eToro Yoni Assia took the center stage several times during the conference and this morning wrote us a powerful letter. Here is small excerpt…

Rome wasn’t built in a day.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Rome Rebuilt
  • Chinese Stocks Boost
  • The Bitcoin Chart

Please note: All data, figures & graphs are valid as of May 18th. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

In the last hour, Italy’s Five Star Movement has announced that they’ve finalized a contract with the League, and will vote on it shortly. It looks like the nation will finally have a working government, possibly as soon as this weekend.

The good news is that it seems they will not be asking the EU to write off their €250 billion debt. The idea was gaining traction within the country, but as we saw with Greece not too long ago, it would be very difficult to get any European leaders to simply erase a mountain of debt.

Some of the highlights of the deal do include….

A quick glimpse at Italian bond yields shows that investors aren’t exactly thrilled with the new plan.

Putting it in perspective, we can see that the new updates are far more impactful than the recent election…

eToro’s top Italian analyst writes…

The main issue is: how do they think they will get the necessary financial coverage for those reforms? (Citizenship Income, Pension Fornero’s Law, Flat Tax)
Do they really think that Brussels will allow them to create new spending initiatives (immigration for example) without batting an eyelid?
It does not seem like the new coalition will have the necessary strength to get the weight in a Europe to affect any real change.

-Gabriel Debach
eToro, Italian Market Analyst

No Worries

If the international markets are concerned about any of this, it sure isn’t showing up in asset prices today. Stocks are mostly flat around the world, with the exception of the China50, which is flying…

This could be due to a softer outlook for the US-China trade negotiations, or possibly just because the index is currently 15% from the top.

Either way, it’s the only real mover today other than crypto.

Crypto Drop

Digital assets went through a mild sell-off last night. Bitcoin fell through support at $8,250 and is now barely holding $8k.

The good news is that the alleged Upbit scandal that smacked EOS and the rest of the crypto markets seems to be resolved now. Bad news always travels faster than good news. Though there was a sell-off when this news hit, the resolution doesn’t seem to be having an opposite effect.

Nothing affects sentiment like price, and as the price drops it is important to put things into perspective. This graph shows the long-term trend line that’s been a foundation of support for the market in the last few months.

Judging by this, it is a distinct possibility that we’ll be testing this line again circa $7,100. The blue line (200DMA) and the round level of $10k will certainly be a hard walnut to crack, but if we do somehow get on top of it…

Let’s have an amazing weekend!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

 

Best regards,
Mati Greenspan
Senior Market Analyst

eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 votes, average: 5.00 out of 55 votes, average: 5.00 out of 55 votes, average: 5.00 out of 55 votes, average: 5.00 out of 55 votes, average: 5.00 out of 5 (5 votes, average: 5.00 out of 5)
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4.6 stars on average, based on 85 rated postsSenior Market Analyst at Etoro.com.




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