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Week in Review

The Week in Review: Bitcoin Surges as Syrian War Looms

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Weekly Recap

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Asset Current Value Weekly Change
S&P 500 2355 -0.30%
DAX 12225 -0.71%
WTI Crude Oil 52.23 2.78%
GOLD 1257.50 0.81%
Bitcoin 1090 10.10%
EUR/USD 1.0599 -0.53%

 

The second quarter started with a hectic week for global financial markets, as the central banks remained in the center of attention before the US missile attack in Syria took over the headlines. Stocks remained stable with a slight rotation between the main indices, as the previously strong DAX and Eurostoxx 50 were among the weaker benchmarks during the period. The Fed’s and the ECB’s meeting minutes were the most anticipated announcements of the week (dwarfing even the expectations regarding the usually crucial US employment report), and the US Dollar came out as the strongest currency after the choppy period, as the Fed still seems to be the most committed to raising interest rate and tackling inflation.

Crude oil was among the winners of the period, despite the rally in the Dollar. Gold had a mixed week, as it finally topped $1260, but plunged back below the crucial resistance on Friday as stock markets recovered, possibly pointing to a more significant correction ahead. The Euro was very weak in the second half of the week, as the dovish comments from Mario Draghi cooled down expectations regarding an imminent monetary tightening in the Eurozone. The Pound also lost ground against its major peers although British equities were holding up well.

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Gold Futures, 4-Hour Chart Analysis

Bitcoin and Litecoin dominated the cryptocurrency market, as the stellar weekend rise of Ripple was halted by a deep correction. Bitcoin rose back near the $1200 level just two weeks after testing the 880 level, while Litecoin hit $12.50 following a strong breakout from below the $4.50 zone. Ethereum traded sideways throughout the week above the $40 level, while Monero drifted lower after a failed rally attempt. Dash found support near the $60 level after rising 5-fold from $20 to $100 between the end of February and mid-March.

The UK provided a number of negative surprises on the economic front this week, as the manufacturing PMI, the construction PMI, manufacturing production, and industrial production all disappointed, with only the services segment showing strength. US and other European numbers were mixed, but remained mostly in line with the stable growth narrative. The ISM non-manufacturing PMI provided the biggest negative surprise, but it still shows robust growth in the sector. US initial jobless claims dipped lower after a worrying jump, although the employment report was mixed once again. Canada is still a bright spot globally, despite the weakness in the local real estate market.

Technical Corner

Range contraction was the name of the game for the most watched stock index in the world, as last week’s bounce stalled out near the upper boundary of the dominant technical pattern (a so-called Megaphone). The benchmark got stuck in a narrow interval towards the end of the week, and this phenomenon often precedes a significant move, as the “tension” in the market grows. The MACD also shows how compressed the recent days were for US stocks, as the indicator didn’t leave the neutral zone, and failed to give a meaningful signal in any direction.

S&P 500, 4-hour Chart

The S&P 500 finished the week right in the middle of the crucial 2350-2355 support/resistance zone that played a key role in recent weeks. The recent all-time high near the 2400 level is the most important resistance ahead, while the 2332 support could also be in play next week, should the index leave the current holding pattern on the downside. The financial sector that we have been monitoring recently also traded in a narrow range throughout the week, so the first few sessions could be critical next week.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday AUSTRALIA Retail Sales (monthly) -0.10% 0.30% 0.40%
Monday UK Manufacturing PMI 54.2 55.1 54.6
Monday US ISM Manufacturing PMI 57.2 57 57.7
Tuesday AUSTRALIA RBA Rate Decision 1.50% 1.50% 1.50%
Tuesday UK Construction PMI 52.2 52.5 52.5
Tuesday CANADA Trade Balance -1 billion 0.7 billion 0.8 billion
Tuesday US Trade Balance -43.6 billion -46.7 bill -48.5 bill
Tuesday US Factory Orders (monthly) 1.00% 0.90% 1.2%
Wednesday UK Services PMI 55 53.5 53.3
Wednesday US ADP Employment Change 263,000 184,000 298,000
Wednesday US ISM Non-Manufacturing PMI 55.2 57 57.6
Wednesday US Crude Oil Inventories 1.6 millon -0.1 million 0.9 million
Wednesday US FOMC Meeting Minutes
Thursday GERMANY Factory Orders (monthly) 3.40% 3.50% -0.80%
Thursday EUROZONE ECB Meeting Accounts
Thursday CANADA Building Permits (monthly) -2.50% 5.40%
Thursday US Initial Jobless Claims (weekly) 234,000 251,000 258,000
Friday CANADA Employment Change 19,400 5,700 15,300
Friday CANADA Unemployment Rate 6.70% 6.70% 6.60%
Friday US Hourly Earnings 0.20% 0.20% 0.20%
Friday US Employment Change 98,000 175,000 235,000
Friday US Unemployment Rate 4.50% 4.70% 4.70%

 

The Story of the Week: Quarterly Performance of Asset Classes

Performance of different asset classes in Q1, Source: Deutsche Bank

If you follow financial markets on a daily basis, it is sometimes inevitable that you lose track of the big picture. As the first quarter of 2017 ended last week, we take a look at the performance of the major global asset classes with the help of Deutsche Bank’s cheat sheet. Generally speaking, the quarter was quiet, as volatility remained tame, especially in the US where the Volatility Index (VIX) hit record lows, as the S&P 500 didn’t fall by 1% for more than a 100 trading days in a row.

Interestingly commodities are found on both ends of the performance chart, as Crude Oil was the worst performing asset thanks to the technical breakdown of the last week of March, while precious metals sit at the top of the list after a healthy rally. Emerging markets were also among the best places for investors in the quarter with the Brazilian Bovespa Index yielding more than 10%.  The Hang Seng (Hong Kong) and the DAX were the strongest major indices, but the FTSE and the main US benchmarks also performed well. Russian equities lagged their global counterparts as the weakness in oil coupled with the increasing political tensions weighed on the country’s assets.

Looking at currencies, the Dollar’s correction was the main theme of the quarter, as the greenback retreated a bit, off its multi-decade highs against the Pound and the Euro after the post-election euphoria faded away. Donald Trump’s first months in office were less significant to financial markets than most analysts expected, although the media-hype was constant. US indices hit all-time highs throughout the period as the global bull market turned 8 on the 6th of March.

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Week in Review

Week in Review: Bitcoin’s Improbable Surge Continues, Dollar Posts Best Week This Year and Stocks Hit New Records

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Bitcoin has been the talk of the town lately, as volumes spiked and prices surged in anticipation of the CBOE futures contract. Altcoins also rose sharply before reversing course later in the week.

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Stocks also rose this week, with Wall Street returning to record territory. Meanwhile, the U.S. dollar index also put up strong gains on upbeat domestic data and uncertainty overseas.

Bitcoin’s Earth-Shattering Volumes

BTC/USD went through the roof this week, as prices crossed $19,500 in an incredible show of strength. At its peak, the world’s no. 1 cryptocurrency was valued at roughly $310 billion.

By the end of the week, bitcoin was trading at roughly $16,000 for a five-day gain of $5,000.

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Bitcoin’s 24-hour transaction volumes reached a staggering $29 billion Thursday, a five-fold increase over month-ago levels. On Friday, daily volumes reached $21 billion, with BitMEX, Bithumb and Bitfinex accounting for more than a third of the turnover.

Altcoins also surged this week, bringing the total market cap to $452 billion. The global cryptocurrency market shed $50 billion on Friday in a broad correction before prices stabilized within $10 billion of the record high.

CBOE Announces Bitcoin Futures Launch Date

Underpinning the latest rally in cryptos was CBOE’s surprise announcement that it will begin offering bitcoin futures this Sunday. The new contract, which will be traded under the ticker symbol “XBT,” will be offered free through December.

“Given the unprecedented interest in bitcoin, it’s vital we provide clients the trading tools to help them express their views and hedge their exposure,” CBOE chairman and CEO Ed Tilly said.

By launching its derivatives contract Sunday, CBOE becomes the first major exchange to venture into bitcoin. CME Group is expected to launch its own bitcoin futures contract Dec. 18.

Stocks Return to Record Territory

Stocks returned to record highs this week, with the S&P 500 Index gaining 0.6% to close at 2,651.50. Ten of 11 sectors contributed to the rally, with telecom, healthcare and energy leading the way higher. Energy experienced a broad retreat earlier in the week along with information technology stocks.

The Dow Jones Industrial Average added 117.68 points, or 0.5%, to close at 24,329.16 on Friday. Meanwhile, the technology-heavy Nasdaq Composite Index gained 0.4% to 6,840.08.

A measure of 30-day volatility known as the CBOE VIX declined for four straight days on Friday to close at its lowest level in over a month. The so-called “fear index” settled at 9.58 on Friday, on a scale of 1-100 where 20 represents the historic mean.

European equity markets also rallied Friday after Britain and the European Union announced a breakthrough in Brexit negotiations, paving the way for future trade talks. The Eurozone blue-chip Stoxx 50 Pr climbed 1.8% for the week to end at its highest level since Nov. 29.

Japanese stocks finished a volatile week on a high note, with the Nikkei 225 adding 2.9% over a two-day period. The benchmark gauge plunged through the first half of the week.

Tax Reform on the Horizon

The Trump administration is moving closer to implementing its long-awaited tax plan after Senate Republicans passed a sweeping overhaul of the legislation earlier this month. The president now believes Congress will come together quickly to reconcile differences in time for Christmas. Trump has stated that the new plan will come into effect Jan. 1, 2018 if Republicans can iron out differences between two versions of the bill.

Analysts say that the new tax provisions would be retroactive in the event that a deal is reached in the new year.

Dollar Hits Its Stride

The U.S. dollar wrapped up its best week of the year, as upbeat economic data and expectations of higher interest rates drove the world’s most active currency higher. The U.S. dollar index (DXY), which tracks the greenback’s performance against a basket of six peers, rose 1.1% this week to close at 93.90.

U.S. employers added 228,000 workers to payrolls last month, following a downwardly revised gain of 244,000 in October, the Labor Department reported Friday. Analysts in a median estimate called for a November increase of 198,000. The jobless rate held steady at 4.1% on month, while average hourly earnings rose at a smaller than expected 2.5% annual rate.

The Week Ahead

The Federal Reserve’s policy board will hold its final meeting of the year next week. Policymakers are widely expected to raise interest rates for a third time this year, according to the CME Group’s FedWatch tool. The rate announcement will be accompanied by a quarterly summary of economic projections covering GDP, unemployment and inflation.

Federal Open Market Committee (FOMC) members will coalesce in Washington on Tuesday, with the official rate announcement scheduled for the following Wednesday afternoon.

Global data flows will also make headlines next week, including reports from China and the United States.

In other policy news, the Bank of England, European Central Bank and Swiss National Bank will each deliver interest rate verdicts. No change on either front is expected.

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.

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Week in Review

Week in Review: Cryptocurrency Market Cap Grows

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The global cryptocurrency market caught a tailwind higher this week, as bitcoin and several leading altcoins extended gains.

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Bitcoin Hits $11,000

The week’s most noteworthy achievement was bitcoin‘s new record high. The world’s most active cryptocurrency spiked above $11,000 for the first time ever, as investors continued to bank on institutional support with the arrival of bitcoin futures later this month.

BTC/USD attained a market cap of $192 billion on Wednesday as prices eclipsed $11,300. After a sharp correction on Thursday, bitcoin bounced back more than 12% in the final session of the week to settle around $10,860. It gained a staggering $2,570, or 31%, over the five-day period.

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Trade volumes also rose this week, and as of Friday, the market had turned over more than $6.7 billion over a 24-hour period.

Cryptocurrency Market Cap Spikes

The combined value of cryptocurrencies in circulation reached record levels this week, as capital poured into bitcoin and several altcoins. The latest peak occurred on Wednesday when the market reached $342 billion. A $65 billion correction quickly followed before the market resumed higher.

As of Friday, the total market cap was around $324 billion, according to CoinMarketCap.

A total of 16 coins are valued at $1 billion or more, with 13 coming in at over $2 billion.

In addition to bitcoin, Ethereum contributed positively to the overall market cap in the middle of the week. The world’s no. 2 digital currency rose above $500 for the first time ever before scaling back its advance in the latter half of the week. At the time of writing, ether was trading around $463.

Meanwhile, bitcoin gold (BCH) lost 13% this week following a sharp correction on Thursday.

Bulls Regain Control of Wall Street

It was another week of record-setting gains for U.S. stocks, with the Dow Jones Industrial Average climbing above 24,000 for the first time. The blue-chip index surged more than 300 points on Thursday to close at 24,272.35, its third consecutive record close. The S&P 500 and Nasdaq Composite Index also settled in record territory.

Despite the strong weekly performance, implied volatility rose for five days straight and eventually settled at its highest level since Nov. 16. The Chicago Board Options Exchange (CBOE) Volatility Index rose 18% this week to close at 11.43.

Political Turmoil

U.S. stocks gave back some of their gains Friday after the FBI formally charged Michael Flynn of lying to Washington about contacts with the Russian ambassador. The S&P 500 was down more than 1% following the news before paring losses later in the day.

Flynn, who briefly served as President Trump’s National Security Adviser, later pleaded guilty.

According to the FBI, Flynn communicated with former Russian Ambassador to the U.S. Sergey Kislyak after being asked by a senior Trump official to probe foreign governments about a forthcoming UN Security Council resolution on Israel.

Accusations of Russian collusion have dogged the Trump presidency since day one. Interestingly enough, the bulk of the accusations surfaced only after Democratic candidate Hillary Clinton was defeated.

Tax Reform on the Horizon

Senate Republicans say they now have the votes to pass sweeping tax reform before the holidays, a sign that the Trump administration was finally mobilizing support for its agenda. The proposed bill, which includes $1.4 trillion in tax cuts, contains provisions to lower the corporate tax rate to 20% from 35%. It also re-writes international business tax rules and lowers individual rates on a temporary basis.

“In the end it all came together and we’re pretty excited about what we’ve been able to accomplish for the American people,” Republican Senate Majority Leader Mitch McConnell said in an interview Friday, as quoted by The Wall Street Journal.

The Week Ahead

The first week of December features several high-profile data releases, including the all-important nonfarm payrolls report. The monthly jobs report is considered a bellwether for the health of the U.S. economy. Chinese trade and inflation data will also make the rounds in the latter half of the week.

On the political front, the U.S. House and Senate will seek to reconcile competing versions of the tax bills in time for Christmas. Although the bills overlap on key areas, important differences still need to be sorted out.

The following chart courtesy of WSJ highlights the differences between the House and Senate tax reform bills:

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 money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Week in Review

Weekly Analysis: European Stocks Hit New Highs in a Historic Period for Cryptocurrencies

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2398 0.88%
DAX 12675 1.76%
WTI Crude Oil 46.47 -5.75%
GOLD 1228.00 -3.21%
Bitcoin 1570 16.11%
EUR/USD 1.0998 0.91%

Global stock markets had a surprisingly quiet week, despite Federal Reserve’s meeting and the US Employment Report, which usually cause volatile episodes all over the world. The major indices were mixed with the European exchanges outperforming their peers by a wide margin. US equities showed weakness “under the hood”, as several broad indices underperformed the leaders of the market. This divergence might be the precursor of a risk-off period, although the second round of the French election will likely be a positive influence in the first days of the week.

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Traditional currencies were little changed amid the cryptocurrency-surge, as the Fed’s rate hike strategy seems unchanged, and the uptick in the US economic numbers halted the ongoing depreciation of the US Dollar. The Yen was among the weakest majors, while the Pound gained ground on most of its peers. Commodity currencies took a huge hit in this week, although the Canadian Dollar recovered strongly on Friday thanks to the rebound in the price of oil. Oil suffered a “liquidation-event”, as it plunged below its 5-month lows and crashed as low as $44 per barrel. Gold also fell sharply, and ended the week near the $1225 level, as the positive global sentiment hurt safe-haven assets.

 

WTI Crude Oil Futures, Daily Chart Analysis

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Cryptocurrencies

The cryptocurrency market had a euphoric week, as the strong rally in Bitcoin and the continued surge in almost all other major coins propelled cryptocurrencies to the headlines of the mainstream media. BTC hit a high near $1600 on all of the major exchanges before entering a fierce and volatile correction towards the end of the week.  The total capitalization of the market reached as high as $46 billion, an incredible 40+% jump in once week. Litecoin and Ripple were the other stars of the week, closely followed by NEM and Ethereum. Monero also performed well, while Dash and Ethereum Classic were the laggards of the period, although the latter held on well to its recent lofty gains.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

The holiday-shortened week proved to be the most bullish regarding economic news in a while, with the US and British numbers providing plenty of positive surprises throughout the period. The Fed’s interest rate decision was in line with expectations, while the Employment Report was back on track, with a Non-Farm Payroll growth of 211,000 and the lowest Unemployment Rate since 2008, at 4.4%. Manufacturing PMIs were mixed globally, with the Chinese and US numbers slightly missing the consensus estimates, while the British number coming in much higher than expected.

On a negative note, the fall in commodities is suspicious for the global economy, especially after the huge Hurray following Trump’s victory. All in all, modest growth is expected to continue, although the very high level of debt in virtually all major countries, coupled by the record low level of interest rates makes the “growth story” very fragile.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 remained in a tight range throughout the week as it failed to follow through the surge of the gap of the previous Monday. This slightly negative behavior might lead to a break-down in the coming days, although a push to new highs is also in the cards following the last minute surge on Friday. The MACD indicator drifted back to neutral territory thanks to the sideways price action, with a possibly developing advancing trend-line being just below the current levels. The current pattern will likely resolve soon, and Sunday run-off in France could provide a trigger for the next directional move.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday UK Treasury Sec Mnuchin Speaks
Monday US Personal Spending 0.00% -0.10% 0.20%
Monday US ISM Manufacturing PMI 54.8 56.6 57.2
Tuesday CHINA Manufacturing PMI 50.3 51.4 51.2
Tuesday AUSTRALIA Base Interest Rate 1.50% 1.50% 1.50%
Tuesday UK Manufacturing PMI 57.3 54 54.2
Wednesday UK Construction PMI 53.1 52.1 52.2
Wednesday EUROZONE Prelim GDP 0.50% 0.50% 0.40%
Wednesday US Crude Oil Inventories -0.9 million -3.3 million -3.6 million
Wednesday US ISM Non-Manufacturing PMI 57.5 56.1 55.2
Wednesday US ADP Employment Report 177,000 178,000 263,000
Wednesday US FOMC Statement
Wednesday US Base Interest Rate 1.00% 1.00% 1.00%
Thursday AUSTRALIA Trade Balance 3.11 bill 3.3 bill 3.57 bill
Thursday UK Service PMI 55.8 54.6 55.0
Thursday CANADA Trade Balance -0.1 bill 0.3 bill -1 bill
Thursday US Initial Jobless Claims (weekly) 238,000 246,000 257,000
Thursday US Trade Balance -43.7 bill -44.9 bill -43.6 bill
Thursday EUROZONE ECB President Draghi Speaks
Friday CANADA Employment Change 3,200 20,000 19,400
Friday CANADA Unemployment Rate 6.50% 6.70% 6.70%
Friday US Employment Change 211,000 194,000 98,000
Friday US Unemployment Rate 4.40% 4.60% 4.50%
Friday US Hourly Earnings 0.3% 0.30% 0.20%
Friday US FED Chair Yellen Speaks

 

The Story of the Week: Something Smells Fishy in China…

 

Long-Term Chart of the Shanghai Composite

We have been monitoring Chinese stocks in recent weeks, as the global rally since the French elections failed to ignite an advance in mainland China. In fact, the Shanghai Composite had scary declines in the wake of the crumbling of the interbank lending system, and the “shadow banking system” in the country. While this might sound technical, it is a very simple thing; the major Chinese banks are losing trust in each other and refusing to lend money to one another. Why is that? Because they fear (actually they know) that there is a huge problem in the banking system of the country.

Some experts argue that the country is in the “Mother-Of-All-Credit-Bubbles” that has been blown by the government in order to maintain growth in the country. Sure, the volume of construction projects that has been driving growth in recent years is borderline insane; and those projects were running on borrowed money, with, sometimes, very bleak return prospects. The chart above shows that non-financial credit in the country went up almost 5-times in 8 years until 2015, and that trend continued in the past year as well.

If we look around, we can see that besides stocks several related assets are showing signs of distress as well, such as commodities, commodity-related currencies, and Chinese corporate bonds. That said it’s hard to say that the bubble is popping right now, and that a US-style credit crisis is imminent. Credit bubbles tend to go on for much longer than expected even in free economies, let alone in a country which is centrally governed by people who get scared if the GDP growth rate falls below 5%.

As China expert Kyle Bass notes in this video, the re-structuring of the system is inevitable, and it will cause huge waves globally, but the timing of it is more than tricky. On another note, the coming Chinese credit crisis won’t mark the end of the China or the global economic growth, but it will be a huge bump on the road, with lots financial pain.

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