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Market Overview

Weekly Forecast: Consensus 2018, Upbit Investigation and the Conclusion of Corporate Earnings Season

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Traders of all persuasions will be drawn to the economic calendar this week, as a combination of market-moving data, industry summits and a federal investigation into a large crypto exchange set to drive headlines. On Wall Street, the bulk of earnings season is set to conclude with U.S. firms on track for their best quarter since 2010.

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

Upbit Investigation Widens

South Korea’s investigation into cryptocurrency exchange Upbit intensified over the weekend after Seoul’s Financial Supervisory Service (FSS) announced it has joined the federal probe.

News broke late last week that the Korean Financial Intelligence Unit (KIU) and the Financial Services Commission had raided Upbit over suspicion of fraud. On Friday, Upbit informed its users that the investigation would not impact operations.

South Korea’s probe disrupted a period of relative calm for cryptocurrencies, as the market plunged by as much as 17% through Saturday. The ongoing investigation will play an important role in influencing investor sentiment over the short term.

Crypto assets staged a large recovery on Sunday, with prices rebounding $25 billion.

Consensus 2018

More than 7,000 people will descend on New York City this week for Conensus 2018, a three-day blockchain technology summit that will feature some of the most prominent names in the industry. The summit, which runs from May 14-16, will feature more than 250 speakers, including Twitter CEO Jack Dorsey and St. Louis Federal Reserve Bank President James Bullard.

Attendees for this year’s summit include startups, investors, banks and policy experts. As Bloomberg reports, attendance has surged nearly 1,000% since Consensus began in 2015.

From the perspective of investors, the annual summit is usually associated with a dramatic rise in cryptocurrency prices. For example, bitcoin prices have gained between 10% and 69% during the last three Consensus events, with post-summit gains ranging between 78% and 138%.

Corporate Earnings

Wall Street’s reporting season will continue this week, although the pace of the releases will slow significantly now that the bulk of S&P 500 companies have reported.

As of Friday, 91% of S&P 500 companies had disclosed their first-quarter results. Seventy-eight percent of companies have reported better than expected earnings and 77% have disclosed revenues that were higher than expected. Combined, their blended earnings growth rate is 24.9%, the highest since Q3 2010, when the U.S. economy was still recovering from its worst recession of a generation.

Three Dow blue chips are scheduled to report this week, including Home Depot (May 15), Cisco (May 16) and Walmart (May 17). Several others are also scheduled to report, including Nordstrom (May 17) and Deere & Company (May 18).

Economic Data

A steady stream of economic data will make headlines throughout the week, beginning on Tuesday with a slew of Chinese reports.

Tuesday

Beijing will report on retail sales, industrial production and fixed asset investment for the month of March. Retail sales are forecast to weaken slightly amid a faster pick up in factory output and fixed asset investment.

Later in the day, Germany and the broader euro area will release revised first-quarter GDP figures. Euro area GDP is forecast to expand 2.5% annually, unchanged from the previous close.

The U.S. Department of Commerce will report on retail sales at 8:30 a.m. ET. Receipts at retail stores are forecast to rise 0.4% during April.

Wednesday

The Japanese government will also report on first-quarter GDP on Wednesday, where the world’s third-largest economy is seen shrinking for the first time in two years.

Final April inflation data from the Eurozone will also make headlines in mid-week trading, as will U.S. housing starts and industrial production. U.S. factory output is forecast to rise 0.5% for April following similar gains the month before.

Thursday

Currency traders will be on high alert for Australian and Canadian employment figures on Thursday. In the United States, initial jobless claims and regional manufacturing data from the Philadelphia Fed are also expected.

Friday

On Friday, the European Commission’s statistical agency will report on the March trade balance, which is expected to show little change on a seasonally adjusted basis. Meanwhile, the Canadian government will release the latest on retail sales and consumer inflation for the months of March and April, respectively.

Monetary Policy

There are no major policy meetings scheduled over the next five days, though several speeches from top central bankers could influence investor sentiment.

Federal Open Market Committee (FOMC) member Loretta Mester is scheduled to deliver a speech on Monday. On the same day, the Fed’s Bullard is scheduled to speak at the Consensus blockchain event in New York.

A monthly meeting of the Eurogroup is scheduled to take place on Tuesday. The event usually includes all 19 Eurozone finance ministers, as well as European Central Bank President Mario Draghi.

On Thursday, Fed Bank of Minneapolis President and FOMC member Neel Kashkari will deliver remarks. Kashkari is widely considered to be one of the Fed’s most dovish members.

Fed Governor Lael Brainard is scheduled to deliver a speech at the 8th Annual Community Development Conference in New York on Friday.

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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4.7 stars on average, based on 771 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Market Overview

Does this Chart Spell Doom for the S&P 500 Index?

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It has been an impressive eight-week stretch for the U.S. stock market, with the S&P 500 Index staging one of its best relief rallies of the past three decades. Investors expecting to ride out another bull market should tread carefully now that the latest earnings forecasts are in.

Scary Chart

Following a painful entry into bear-market territory on the eve of Christmas Eve, the S&P 500 Index has recovered an astounding 18%. On Friday, it closed at 2,775.60, its highest since Dec. 3.

The recent run of good fortune has come largely on the back of better than expected corporate earnings as well as signs of progress on U.S.-China trade talks. But these catalysts could become headwinds in the near future.

Case in point: FactSet recently issued grim guidance for S&P 500 companies, forecasting a year-over-year drop in earnings during the first quarter of 2019. The research firm’s rationale for the downgrade comes from the so-called bottom-up earnings per share (ESP), which is “an aggregation of the median EPS estimates for all the companies” in the S&P 500 Index. This figure declined by 4.1% in January, a much bigger decline than the five-year, ten-year and 15-year averages.

All 11 primary sectors tracked by the S&P 500 recorded a decline in their bottom-up EPS estimate during the month of January. The biggest losses were reported by energy and information technology, the S&P’s largest and fifth largest sectors, respectively.

That leads us to the following scary chart, which appeared on the Quoth the Raven Twitter feed on Friday:

Forward earnings are a forecast of a company’s next-period earnings, usually to completion of the current fiscal year or next fiscal year.

Related reading: The January Stock Rally Could Face a Painful Reversal.

Watch Out for 2,800

Morgan Stanley, one of America’s largest banks, is warning investors not to “get caught up in price momentum” of the latest rally. The warning comes as the S&P 500 is once again approaching 2,800, a level where rallies come to die.

While valuation isn’t a reliable predictor for market timing, the headwinds posed by 2,800 are compelling. Combined with dismal earnings guidance, it’s likely that market fundamentals will detract from the latest rally attempt.

If the S&P 500 does go beyond 2,800, its valuation based on 2019 average per-share earnings will be 16.5 times forward earnings. As Bloomberg notes, that’s the average reading of the past five years and a strong sign that stocks are becoming overvalued.

“Don’t get caught up in the price momentum, as if the market is telling you something that may happen,” Mike Wilson, a strategist at Morgan Stanley, told Bloomberg TV. “The data isn’t improving, and the data probably isn’t going to improve over the next two to three quarters, and that’s going to create uncertainty again when you’re trading at 2,750-2,800.”

Featured image courtesy of Shutterstock. Charts via Barchart.com. 

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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4.7 stars on average, based on 771 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Market Overview

Stocks Surge on U.S.-China Trade Optimism; Dow Notches Eighth Consecutive Weekly Gain

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Stocks surged on Friday, with the Dow hitting its highest in over three months as investors embraced apparent progress in U.S.-China trade negotiations. Meanwhile, President Trump declared a national emergency over border-security funding mere hours after Congress approved a new budget resolution preventing a second costly government shutdown.

Dow Extends Winning Streak to Eight Weeks

All three of Wall Street’s benchmarks headed for gains on the final day of the week. The Dow Jones Industrial Average spiked 443.86 points, or 1.7%, to close at 25,882.25. That was the Dow’s highest settlement since Nov. 9.

Financial bellwethers Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co (JPM) were the Dow’s biggest gainers on Friday.

Read: JPMorgan Becomes the First U.S. Bank to Launch Its Own Cryptocurrency.

The broad S&P 500 Index advanced 1.1% to settle at 2,775.60. All 11 primary sectors finished higher and five reported gains of at least 1.1%. Financials were the biggest contributors to the rally, climbing 1.9% as a group. Energy stocks rose 1.4% and health care added 1.3%.

The technology-focused Nasdaq Composite Index added 0.6% to finish at 7,472.41.

A measure of expected volatility over the next 30 days fell on Friday to its lowest level since early October. The CBOE Volatility Index, also known as the VIX, reached a session low of 14.79 on a scale of 1-100 where 20-25 represents the historical average. Volatility usually drops when stocks rise.

U.S.-China Trade Talks See Progress

The White House on Friday touted progress in the ongoing trade negotiations between the United States and China after both sides concluded two days of meaningful dialogue.

In an official press release, the White House described the negotiations as “detailed and intensive,” which led to “progress between the two parties. The statement added: “Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff on certain imported Chinese goods.”

China next week will send its trade envoy to Washington to resume the negotiations. While both sides have until Mar. 1 to get a deal finalized, President Trump has said he will let the deadline “slide” if the two countries make progress.

Trump Declares National Emergency

The wall is coming, says Trump. | Source: Shutterstock.

President Trump has declared a national emergency to unlock additional funds for his proposed 234-mile border wall with Mexico. The declaration ignited a new debate over the legality of increased border spending even though “national emergencies” are hardly novel among presidents.

Check out the week that was in our Week in Review: Jamie Dimon Gets Crypto Fever as JPMorgan Develops Stablecoin; Bitcoin Fundamental Improve

On Thursday, both houses of Congress passed $333 billion in new spending legislation. The budget allotted just $1.38 billion towards the border, which is well short of the $5.7-billion Trump had requested. Under the current budget blueprint, the United States would have enough funds to erect an additional 55 miles of barrier.

In a speech at the Rose Garden, Trump said a fortified border was essential to national security. “We’re talking about an invasion of our country,” he said, according to The Wall Street Journal.

Featured image courtesy of Shutterstock. Chart via Barchart.com.

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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4.7 stars on average, based on 771 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Analysis

The “Accessibility Premium”: How Coinbase’s Overseas Expansion Could Affect Crypto Prices

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The accessibility premium refers to the affect on a cryptocurrency’s price when it is added to Coinbase. The $8 billion valued exchange is now looking to expand beyond its U.S-based institutional trading business to offer institutional services worldwide. Bitcoin, Bitcoin Cash, Ethereum, and Litecoin may end up being the greatest beneficiaries. These cryptocurrencies could gain from increased accessibility; the new “Coinbase Effect”.

In 2018, as the exchange added more cryptocurrencies, some writers wrote about a perceived “Coinbase Effect”, like Ari Paul. They theorize about an “accessibility premium”, in which those crypto-assets that are more accessible rise in price. With Coinbase bringing crypto to worldwide investors, it could bolster demand for those coins that are listed on the San Francisco-based “Goldman Sachs of Crypto”. They would be more accessible. When a new cryptocurrency or token hit the exchange, traders might expect a bump in price. 

On May 3, 2017 Coinbase integrated Litecoin, resulting in a 30% increase in the price. When Coinbase listed Bitcoin Cash on December 19, 2017, trading on global exchanges skyrocketed. Bitcoin cash closed at $4,000. Two days prior, its price had been $2,200. Volume increased from $2.5 billion on December 18 to nearly $12 billion on December 20 for a 380% increase.

Coinbase added Ethereum on July 21, 2016, resulting in a modest 14% rally. Things changed when Brave browser’s token, BAT, launched on Coinbase. It declined in price. Further data is needed to know the truthful dynamics. By the time BAT was listed, the price of crypto had long since started a consolidation, leaving sentiment low.

Fast forward Q1 2019, and Coinbase is expanding overseas. It is laying down infrastructure for the long-term as it looks towards Asian markets, amid moves to attract international institutional money to cryptocurrency trading. (Coinbase’s product GDAX offers US-based institutional trading) New traders might find Coinbase’s familiarity welcoming. Higher volumes would be to expected for the cryptocurrencies offered by the Silicon Valley giant. 

So, the popular exchange is undergoing an extensive expansion. Coinbase customers residing outside of the U.S. can now trade without a domestic bank account. This could be a boon to the prices of cryptos offered by Coinbase, led by Bitcoin.

There has been discussion about the correlation between simplicity and demand. Opinions on the effect ease of use has on demand are not entirely aligned. As Donald Norman says in his book “Living with Complexity”:

… the so-called demand for simplicity is a myth whose time has passed, if it ever existed.

Make it simple and people won’t buy. Given a choice, they will take the item that does more.

Features win over simplicity, even when people realize that features mean more complexity. You do too, I’ll bet. Haven’t you ever compared two products side by side, feature by feature, and preferred the one that did more? …

Would you pay more money for a washing machine with fewer controls? In the abstract, maybe. At the store, probably not.

Ultimately, Norman argues for managed complexity. But, the demand for simplicity – or at least clarity – seems logical in a chaotic, complex world. In a blog on their website called “The Customer Demand for Pervasive Simplicity”, Cisco writes of this perception, and how it tailors its products towards this end.

A bastion of crypto-simplicity, Coinbase has long courted institutional investors in the U.S., but now its targets are clearly set on a global institutional book. The stage is set for crypto’s first truly global exchange, though Coinbase will need to first successfully assimilate into new countries, with their unique business practices languages, laws, and regulations. Currently, differing regulations in different countries keep crypto’s exchange ecosystem quite regional.

Coinbase holds 5 percent of all bitcoin, 8 percent of all ethereum, and 25 percent of all litecoin in circulation in cold storage. Its success overseas would likely underpin their prices if the “accessibility premium” holds true.

Marcus Hughes, recently appointed as lead counsel for Coinbase in the United Kingdom, has been tasked with overseeing cross-border expansion: “Coinbase takes the long view on bitcoin and wider cryptocurrency prices,” Hughes said, “We need to move beyond the speculation phase of bitcoin and cryptocurrency to the utility phase.”

He added: “The utility phase will mean bitcoin and crypto becomes more widely accepted and understood.”

This solidifies bullish sentiment from the exchange which will be strengthened should it be successful in its bid to attract ‘big money’, not just from a core user base in the U.S. but also from thriving crypto markets in countries such as Japan.

Coinbase reports that, “In the past twelve months, hundreds of crypto-first hedge funds have launched around the world, and many hundreds more traditional institutions have begun [actively trading digital assets]. High-volume clients across Asia will now have access to Coinbase’s flagship trading platforms for institutions. As part of this rollout, we now support inbound and outbound international (SWIFT) wire transfers, allowing Coinbase clients in Asia to fund their accounts from non-US bank holdings.”

Coinbase predicts a bright future for digital currency in Asia, it says, and looks to enter into a market that could help it to cement a role as one of the global leaders in crypto trading. But there remains a big question mark over cryptocurrencies, prominently over how regulation is going to play a role.

Marcus Hughes opines that this year will see a “massive change” for global bitcoin regulation. He says that Europe will gradually lead the way out of a “crypto winter” into regulated digital currency markets with more potential for long-term stability. But, in the short term, irrational trading might paint an entirely different picture. 

As we see Coinbase invest in the long-term it bolsters confidence in a currently inhospitable climate for bitcoin. Should prices continue to fluctuate market sentiment may dip, but it is the notion of institutional money that may serve to give cryptocurrency markets much-needed price stability. 

Image: David McBee, Pexels

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 stars on average, based on 2 rated postsJustin O'Connell is the founder of financial technology focused CryptographicAsset.com. Justin organized the launch of the largest Bitcoin ATM hardware and software provider in the world at the historical Hotel del Coronado in southern California. His works appear in the U.S.'s third largest weekly, the San Diego Reader, VICE and elsewhere.




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