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Market wrap-up - January 16, 2023

Today is martin Luther King’s Day in the US so we enjoy a quiet session after the hectic start of the year.

Markets closed on a positive note last Friday as Jerome Powell failed to move the market earlier that week as he did not say much, so the focus last week was rather on the US CPI prints. If you read our last update, you already knew it was bound to be the highlight of the week.

They came in exactly as expected by the consensus, pushing the 10Y treasuries to 3.50% to reflect the expectations of looser monetary policies.

One of the main reasons consumer prices could remain contained is the drop in energy prices. If you only look at the core CPI, which excludes food and energy, prices are up 0.3% compared to the previous month.

But overall, the one-year trend is encouraging investors to keep believing in a more accommodative Fed in 2023, with the 6th decelerating CPI YoY levels in a row.

And any bear would admit that the World Bank revision of its global growth forecast did not help. They almost halved it, from 3% to 1.7%for 2023, with only a tepid 2.7% expected for 2024. That was enough to boost the bulls.

Even the Consumer Sentiment Index which came out much higher than expected could not tame the euphoria. That being said, as far as I’m concerned, I would not anticipate any rate cut in the US in 2023.

Anyway, both crypto and traditional markets rose, and Bitcoin even reached double-digit performance (20%+) and claimed 21’000 back, a level last seen more than 2 months ago. What’s more, the Nasdaq had 6 consecutive green days and we know the impact this can have on the Digital asset space.

The question on many lips right now is to know when this rally should be sold into. Look at European equity indices, the best performing developed markets this year with +9.50% already. Everything points to an upcoming selling pressure: the hiking trend is still strong, German inflation is around a record high, and recession is almost a given for the Eurozone…yet the stock market rise seems unstoppable. The UK index even reached its highest point on records despite all the doom and gloom.

So, hedge funds are increasing their short positions on equities, and crypto investors keep their eyes on the surprisingly high Relative Strength Index for bitcoin, the highest in close to 3 years and far above the “overbought” level of 70.

We closed last week with the opening of the earnings season, as usual with US banks. One could think it could have been worse as higher interest rates could help them offset lower revenues from investment banking last year.

But the interesting part was the cautious tone about the economic outlook from most (if not all) of them. “Recession” was the key word that stuck in investors’ minds on Friday so we’re looking forward to hearing from Goldman Sachs but also from retailers and tech giants now. Netflix will set the tone as early as this Thursday, but we will have to wait 2 more weeks to get a better picture of the economic outlook. Stay tuned.

Johan Thomyris



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