Jan 9
Market wrap-up - January 9, 2023
Happy new year to all!
Today we will be looking back on a short and rather quiet week, but a few things are still worth mentioning. So far, both cryptocurrencies and equity indices started off on the right foot with most markets in positive territory. Chinese and European equities are leading the way in traditional finance (TradFi) while altcoins are showing the path in the digital world with double-digit growth.
In comparison, bitcoin price moves seem tepid with only a 4% rise but hey, investors are praising gold after a 2% move year-to-date, so let’s not go to hard on “digital gold”.
That being said, other than the colors on the screen, not much has changed. Inflation and recession will most likely be the market drivers throughout the year again. The very reason why we have this positive performance is because of US macro-economic news.
On Friday, the ISM Services, basically the gauge for the service sector in the US, has printed its first level below 50 since the global lockdown of May 20. Any report below 50 means the activity is in contraction mode and the market expected 55, so that came in as a big surprise. This was immediately seen as a sign that the Fed could slow down on their hawkish plan and give markets some relief. The fact that the US employment rate has reached its lowest level since de 1960s was not enough to temper the market euphoria. The US 10Y yield dropped by 8%, the US dollar lost ground, both pushing equity markets up.
As previously mentioned, China could benefit from that risk-on mood as it passed a long-awaited restrictions lift. In the coming months, Chinese stocks are likely to trend higher in such environments given that valuations have been under pressure for some time now and earnings are still at decent levels.
The reason why Europe is the runner-up so far this year comes from 2 main factors. First, a mild winter. This might be terrible news for Europeans planning their ski holidays in the Alps, but it came in quite handy for governments and central bankers trying to contain an energy crisis caused by the war in Ukraine.
Then, it also helps that Germany, Austria, France, and Italy all published improving inflation readings. As you know by now, whatever makes investors think we’re out of the wood is celebrated as in we were already there. But are we?
To find out, we will keep a close look on the upcoming earning season. This Friday 13th, JP Morgan, Bank of America, Wells Fargo, BlackRock, Citigroup, Delta Airlines and more, will publish their results but more importantly, their guidance for 2023. Hearing from companies is a great indicator of the challenges that lie ahead of us and should help us assess the magnitude of the economic slowdown we will be facing.
Unfortunately, we’ll have to wait until February to listen to MicroStrategy or Coinbase, but I dare to say that we have a pretty good idea about their earnings already so I guess they will be extra careful with their forecasts.
Before then, all eyes on the US CPI next week, as it should definitely impact the market sentiment.
All the best for 2023, good luck out there.
Johan Thomyris
