Welcome to Expert Insights, a weekly analysis of all the major market moves, news and opportunities that will shape the week ahead.
This newsletter and the statements contained herein are the mere opinions of industry professionals, to which other equally qualified industry professionals may disagree and should not be relied upon as financial advice and do not necessarily represent the views of Freeway. You should always do your own research and seek independent expert financial advice.
Dear #FreewayFam,
A market of extremes, of chaos. Who can predict the near future? Will Europe survive the long winter? Will the central banks manage to stop inflation and the devaluation of national currencies? Read these experts’ views and insights for this week.
Agent Alpha
It is chaos out there but, believe it or not, chaos is really what BULLS want and NEED to see.
This is now a market of extremes — it is a global market of total chaos that the FEDERAL RESERVE started and it will soon FINISH. A simple point — the wheels of the Global financial model are falling off everywhere = structurally speaking, investors (in my view) need to think about what model comes next, because it is NOT the classic model pre-GFC (Great Financial Crisis) of that I am absolutely convinced.
I want to start off today with some examples of chaos — because, of course, at this stage there are so many.
Let’s talk about China to begin, where the pressure on risk assets has been inexorable. To be clear today is not about discussing the whys and wherefores but rather just the historical context of how extreme markets have now got globally, and how investors in every asset class literally have no idea about what is coming next and how to read the developments as they are happening in real-time at such a pace.
Remember the adage from Lenin who said that ‘nothing happens in decades, and then decades happen all at once’. Well, we can think of the right here and now in this context for sure.
Ok, back to China first.
HSTECH Index:
So what?
Well, this needs to be considered in the context of the terms of hard data coming out.
In that case we’re seeing increasingly encouraging indications that the stimulus measures by the authorities in China are now filtering through. Below I flag the latest new loan data 2.4 Trillion Yuan vs. 1.8 Trillion expected, and critically the M supply data for M2 — which is the broadest money supply metric — is now at multi-year highs of +12.1%. This is the cleanest macroeconomic metric that indicates the velocity of activity in an economy.
New loans:
M2:
Again, so what?
Well, to the point — it doesn’t take a genius to figure that something else is going on here for such a chasm to exist between the high growth (supposed) HSTECH index (Chinese listed technology companies) and the velocity of activity markers. What we’re dealing with, therefore — statement of the obvious — is a market that is becoming dominated by liquidity vortexes, self-reinforcing negative feedback loops emanating of course primarily from the FEDERAL RESERVE. There is no liquidity, it is drying up — even in China — and closing in on absolute chaos should it continue.
HSTECH / M2:
Same picture for the Chinese property sector, which has been in dire straits for years now; but the extremes vs. M supply is now at unprecedented levels.
Chinese property index / M2
Ok, that’s China.
What about in the West?
Well, we have what I would call a Mexican standoff, U.K.-style, going on right now and this is dominating market sentiment.
For those unfamiliar and without attempting to make your eyes glaze over, forget the politics — because that is a sideshow to something that was going to happen anyway — what do I mean by that? Well, U.K. pension funds loaded up on leverage during the easy money years to balance their assets and liabilities. They went up the risk curve because their defined pension schemes couldn’t get the return required without leverage to satisfy paying out the pension pools.
Cue rapid rate rise and cue chaos.
What we have in the U.K. is a Bank of England trying to address this problem — chaotically — by trying to fiddle around the edges essentially. Telling pension funds that they will buy longer-dated gilts — what pension funds own predominantly to match duration with liabilities of paying out pension flows — for a set period of time ending this week. Pension funds, on the other hand, are not willing to sell because the valuations are based on a Gilt market with NO LIQUIDITY and therefore false price signals. I am simplifying but to make the point.
We have a Mexican standoff right now because last night the BoE Governor Bailey reiterated at an NYC conference that the pension industry had only 3 days left to sort their ‘sh8t’ out (paraphrase you get me). The FT then reported this morning that the BoE will CONTINUE with bond purchases past this week, to then be contradicted again by a BoE statement saying that they meant it!
Chaos! — Don’t underestimate the sheer size of the U.K. pension fund industry and the fallout global ramifications should this stand-off truly blow up.
But again this really stems NOT from politics (however chaotic that may seem) BUT from liquidity or lack of it derived from the FED continuing its path of zealotry hiking and liquidity withdrawal.
NEXT!
The SWISS! Can you believe it? That bastion of stability… Because it may be worth flagging how the FED has quietly opened a $ swap line to Switzerland — sssshhhhh — , now why the FED has had no choice but to do so is rather for obvious reasons due to a certain institution scrabbling around for liquidity before potential implosion; but the point — AGAIN — is how a soaring $ is causing global liquidity crisis and will force without question the multiple opening-ups of $ swap lines to politically friendly central banks from the FED.
The opening of USD swap lines to central banks from the FED is what the pivot looks like in stage 1.
Ok, back to ASIA!
Because overnight we had moves from the South Koreans. What are they doing?
- S. KOREA TO SWIFTLY PREPARE TO ACTIVATE THE STOCK STABILIZATION FUND.
- S. KOREA TO EXPAND CORPORATE BOND SUPPORT PROGRAM TO 8T WON.
- S.KOREA TO ACTIVELY RESPOND TO RISKS IN BONDS INCLUDING ABCP.
Yep, you guessed it, reversing course. They are now having to address their corporate debt market liquidity seizure by reactivating QE essentially. This, as the Central Bank overnight hiked rates by 50bps, as expected, to 3%. They have indicated at 3.5% they’re done. This is what we call ‘operation twist’ which is re-engaging QE whilst at the same time hiking rates. Incidentally exactly what the BoE is going to end up doing — along with many others.
So let us go now back to the States:
The latest New York FED inflation expectations published yesterday saw the biggest fall in the series’ history.
What the market is waiting on right now as chaos ensues almost everywhere is the latest inflation data. Today the PPI (Producer Price Index) & the biggy CPI (Consumer Price Index) tomorrow.
Into those prints is a handy quick snapshot of the latest FED terminal rate which has pulled back again slightly this week and the subsequent rate-cutting pricing market in ’23 has also marginally stepped back up too. In other words, the market is at the margin once again trying to question the realistic outcome of this FED as opposed to what they keep on resolutely saying is the outcome going forward.
To remind you about the resolute message from the FED currently, they will get rates to c. 4.5% vs. 3–3.25% current, and they will keep rates there for an extended period of time.
U.S. terminal rate & cutting pricing:
Now what I think is REALLY quite important amongst all this global chaos is what I am going to term/classify now going forward as the ‘pivoters forlorn hope’ and that is a coalescence of notable opinions pushing back against this FED.
We had JPM’s Jamie Dimon on Monday talking about how credit markets had already panicked and been broken with c. -20% downside for equity markets from here that could now happen on a U.S.A. economic hard landing probability getting more and more likely. He’s listened too.
We also had the FED’s own Vice Chair Lael Brainard discussing explicitly on Monday that policy was perhaps going too hard too fast (I paraphrase, of course). She MUST be listened to too.
We are having global turmoil(s) plural and are having quite clear G4 Central Bank increasingly panicked interventions from the BoE as per above, the Japanese and now the SNB and Koreans. This does not go ignored for long.
And we had that bastion of global policy makers group think the IMF out yesterday warning that all SIGNALS are pointing to a probable calamity (plural) at the current pace of central bank aka FED trajectory.
The paradox for the FED is that their mandate — employment and inflation — dictates they stay the course and the problem they have is that the headline ‘primary data’ refuses so far to turn as they need to see. But the secondary data points are screaming en-masse that the FED (and global peers on a group zealot-like dynamic) have already broken the system and if they do not pull back now (or very soon) could well end up in a world that ultimately is nigh on impossible to save.
It is chaos out there.
So, let me conclude today with that NYC inflation chart, for context, as to the pace now of the inflation downturn, aka POSITIVE stuff.
The latest NY inflation expectations released yesterday certainly on the 1-year metric was encouraging to the above ‘forlorn hope’ — the 3&5-year not so much as they up-ticked. However, well within the comfort range is fully comparable with the long-running trends.
And for context on this 1-year reading? This was the biggest fall in the series’ history:
NY inflation expectations:
I will finish here with the global proxy risk index the S&P — which on a longer weekly MAV basis for reference — is just below the 3679 200 MAV reclaim that is required to perhaps provide some ballast to risk assets per se. It trades right now near enough at the ‘last bastion’ support level of c. 3575. Failing here? Opens up the 3400–3k range with all that price action back in 2020 being the reference.
E-mini:
Until next time!
Alpha
Crypto Quant
Double Surprise!
Welcome to bear market rallies, because this will be everyone’s face in a few weeks at this rate. We’re going to see a real rally coming up at some point. It’s not going to be yet, though.
BTC and related metrics on Technicals: I’ll list each one with a simple indication of up (⬆️) /down (⬇️)/sideways (⬅️➡️). Extra macro significance gets 2 arrows.
Total:
⬆️:0
⬇️:13
⬅️➡️:1
Verdict: While we can go up, we are far from done.
The analysis below:
⬇️ The spy has moved down on hilarious news that banks want this to be the bottom.
⬇️ Crypto fear and greed remains in the 20s. (24 now.) Recession fears are quite justified.
⬇️ Daily moving averages have returned to being 100% bearish and do not appear to show that we are going up anytime soon.
⬇️ Ichimoku for BTC is again bearish on daily/weekly/monthly despite a short-term fakeout.
⬇️ DXY has continued to climb.
⬇️ Monthly open is back to doomtown.
⬅️➡️The 3-day SPY chart does show that for now, we could maybe be sustaining or rounding out a bottom, but we have yet to see confirmation.
⬇️4h metrics are now a double top that has turned completely bearish, and even has a form of a head and shoulders on top of it.
⬇️ Bitcoin dominance is now starting to move up and this may signal we are going to see a true bottom for the market, which will be very ugly.
⬇️ Short squeeze over, next move is down.
⬇️ Futures Funding data shows that we’re done with shorts, and down we go. Look out below!
DXY Finished its correction and now appears ready to continue higher. Remember that this does not guarantee that the market will inverse the DXY forever. Currencies, however, are in trouble. ⬇️
We still look on track to repeat what could be a major recession. ⬇️⬇️
Total2 (above) — Overall, here’s what we’ve been seeing since around. In January of this year, we became completely bearish. We had a few times where we could have maybe turned around, such as in early April or early August. However, since then things have only gotten worse. The only thing that looks like it’s going to happen now is we are going to go further and we are talking about new lows, which could be another 50% down from here all the way down to another 90% down from here.
BTC dominance (BTC.D) — Bitcoin dominance is slowly starting to rise, but it could drop as well. It’s not exactly clear at this time with what we have going on whether this move is going to be real or not. If it really does go up, then this is probably the beginning of a bigger move, with room to bleed further lower.
DeFi outlook: DeFi — DeFi could have turned around with what had happened in approximately August, but that was not the case. So now they are going to continue further down and we could see as much as a 75 to 90% drop at a minimum, with what remains of DeFi at this time.
Trader outlook: This is going to be a very ugly week, if not month. I don’t think anyone is going to see happy times this year.
Notable events outlook:
Crypto: Binance and Sequoia are saying they’ll still support Musk buying Twitter. That’s not to say whether Musk will actually be able to buy Twitter, because he signed an agreement saying that he will pay for it no matter what if he’s going to proceed with his own money, even if Binance and Sequoia back out. Visa partners with FTX as Binance’s chain gets hacked.
Globally:
Euro CBDC talks continue — which would eliminate a lot of arguments for crypto.
War: The U.S. is now increasing their support for Ukraine. G7 / White House calls out Belarus after Russia shoots cruise missiles at civilian areas. Newly mobilised troops from Russia are calling out a lack of supplies.
The Crimean bridge has been significantly impacted, and this will drastically shape the next war phase.
U.S.: Trump’s links to Russia are looking clearer and clearer as Trump’s legal cases escalate. People start playing politics with economics, which never ends well.
Prior Opportunity follow-up: MKR moved up nicely, and BCH and BNB moved down. I’d be exercising caution on leaving any of those open at the moment, as the market is very pivotal.
New Opportunities:
I don’t see this as a good week. Rather, I see this as a sign of a market trying to make plays on thin air. Take time off while Biden has some major announcements throughout the week.
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Until next time,
Sadie Hutton
Co-Founder and CEO
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