Although there is hardly ever a dull moment in the financial market specially after the introduction of Cryptocurrencies, this week saw a little more meaningful market moves in all three market segments – Cryptos, Stocks & Forex. Most of the Cryptocurrencies have continued to move up from the lows reached about three months ago, albeit very slowly. While the U.S stocks started to show signs of exhaustion with the current nine-week rally as they closed lower for every day of the week citing a global economic slowdown. Tracking the lower Equities, Greenback sprung back to life against Majors caved in against the mighty Dollar. Will look at the price movements a little later, but first let’s review some of the closing numbers in the key indices of the financial markets.
Starting off with digital assets, there are good news & bad news price-wise. Good news is that the Cryptos have held the lows reached three months ago but the bad news has been the mundane price recovery from that level. Any meaningful recovery in the bias remains elusive for now. On the other hand, the adoption & diversification of digital currencies continue to gain traction. Back in November, I wrote about an Ethereum-based ETP that was jointly launched by the primary SIX Swiss stock exchange & Swiss startup Amun AG. The crypto trading product has finally started to trade on the exchange with the ticker symbol AETH with a 2.5% management fees. The index will have the following composition (approximately):
The other two interesting events included the launch of Crypto trading services by the popular social investing trading platform eToro (10 million registered users) in 32 U.S states. The service will allow the trading of 13 crypto assets with the support of a multi-signature wallet – support for more digital assets will be added later. The second was the launch the largest stable coin Tether (USDT) on the Tron blockchain (TRC-20) – this newer version of the most popular stable coin would enable it to transact & interact on the Tron blockchain, which is a direct competitor to Ethereum in the dApp space.
Looking at the Bitcoin chart (below), the crypto kingpin has tried to penetrate the psychological level of $4K but has looked unconvincing. The price move up from earlier last week to the $3700 level has looked constructive so far. The choppy consolidation is expected to continue so long as the resistance level at $4080 is not broken. As usual, the rest of the Cryptos have been tracking BTC upwards. A drop below the $3820 level would look to reinforce the bearishness. BTC dominance is sitting @ 51.4% with a market cap of $134 billion.
The interim growth report by the OECD shows the global GDP slowing down to 3.3% in 2019, a further downgrade from 3.5% in November (the original forecast cut from 3.7%). The growth is getting weighed down by trade disputes, geopolitical worries & related economic woes. The data around the major regions of the world is reinforcing the slowing trend in the global economy.
China has lowered its economic growth forecast to 6.0-6.5%, the weakest number in almost three decades. The government has announced a $298 billion stimulus package which includes massive tax cuts among other measures. The $1.8 trillion stocks rally on China’s Shanghai Composite Index came to screeching a halt on Friday, when the index plummeted 4.4% on the back of a sell rating by the country’s largest brokerage. The sell-off wiped off $345 billion from the Equities in a single day, which some investors believed was an attempt by the government to prevent an overheating of the market. Over in Europe, the largest economy of the region is also losing steam – the factory orders showed a surprise drop of 2.6% against the expectation of a 0.5% gain. With the country barely surviving a recession at the end of 2018, indications are inclined towards further weakness.
Across the pond in the U.S – the NFP release for the month of February gave a rude shock to the investors when a consensus estimate of a gain of 175K jobs was slapped in the face by an actual addition of a meager 20K jobs. This has of course thrown cold water on the 9-week rally with the all three indices retreating significantly from the recent highs. A comprehensive trade agreement between the two largest economies of the world is being seen as the savior of the current bull run. It remains to be seen whether it has already been priced in the recent bull run or whether it would infuse fresh momentum to the existing rally.
The benchmark S&P 500 index (chart above) retreated from the key resistance level in the 2810-15 region which is becoming a hard nut to crack. At this time, the index has moved back into the consolidation territory. Immediate support in the 2680 region needs to hold for the bullish bias to stay on track. A break if this level could mean a temporary top in place & point towards further weakness. On the flip side a break of the key resistance would confirm the resumption the bull trend & aim for the all the time high reached in September of last year.
Persistent weakness in Stocks gave renewed vigor to the Dollar rally, the dollar index (DXY) banged in the previous MT high before retreating a little on Friday to end the week on a positive note. The index is at a key point right now looking all set to take out the previous high & continue the Medium-term bullish rally after making a series of higher lows. While some consolidation might be seen below this level, the bullish bias is firmly intact. A risk-off sentiment in equities might expedite the run at this key resistance.
Another very important event in the FX markets last week was the rate decision by the European central bank (ECB), which only kept the rates on a dovish hold but initiated an easy credit scheme for the banks to spark growth in the single economy. There are no signs of a rate increase till 2020 at the earliest. This accompanied by weaker economic data from Germany caused a huge drop in EURUSD. The pair broke the key 1.1200 level, making a new MT low @ 1.1176 with the bearish bias firmly intact. GBPUSD has reversed pretty hard as well after making a new high @ 1.3345 earlier to close at 1.2987, with another failed Brexit vote in the offing next week. USDCAD keeps its firm bullish undertone but Friday brought some reprieve for the Looney as good job numbers from Canada saw the pair turning down in the short-term.
Next week sees CPI data, Durable good, Retail sales & U. of Michigan sentiment out of U.S, Chinese retail sales & BoJ rate decision. Time to wrap things up here. Happy trading everyone – leaving you with a comic on the lighter side of things, depicting the slowdown in global growth.