The Fed Hikes and The Market Turmoil Continues
Hi everyone, this will be the last Market Wrap until the 12th of August as the team is taking a well-earned Summer break! Peter will continue to update The Spark’s portfolio weekly, so ensure you sign up for our email subscription so you stay up-to-date with the latest developments!
This week multiple central banks have acted in the fight against inflation, and this led to severe impacts on financial markets. Meanwhile, one of the major US banks has had its fate decided in a high-profile lawsuit, and Tesla is making a move to strengthen its share price. Also, tough times continue for crypto holders… Enjoy!
Stocks on the slide
This week US equity markets have suffered their worst decline since the beginning of the coronavirus pandemic, mostly caused by interest rate hikes from the Federal Reserve (Fed), the US central bank. The Fed increased its benchmark Federal Funds Rate by a severe 75 points to a range of 1.5% to 1.75%, swiftly followed by the Swiss National Bank and the Bank of England. The rate rises have heightened fears of a harsher economic slowdown, and with risks of recession rising, central banks are finding it more difficult to balance the fight against inflation and sustained economic growth. The benchmark S&P 500 index finished down 5.8%. Read Peter’s latest update on how The Spark’s portfolio is adapting to current market conditions.
A sigh of relief for JPMorgan
JPMorgan Chase has this week come out on top in a $1.7bn lawsuit against them for participation in the facilitation of payments to a former Nigerian Minister who had previous criminal convictions for money laundering. The Nigerian government sued the world’s leading Investment Bank for gross negligence after they made a payment of almost $900m to a company under the control of Dan Etete, former Nigerian Minister of Petroleum who was convicted as a money launderer in 2007.
London’s High court ruled against the lawsuit as there was no evidence that any form of fraud had been perpetrated against Nigeria. The payments were linked to the settlement of a dispute between Shell and Malabu over the ownership of the Nigerian OPL 245 Oilfield, with Nigeria claiming that the settlement payments made to Malabu as a result of them surrendering the oil field are “suspected to have flowed into the accounts of cronies with connections to former Nigerian Politicians.” So essentially Nigeria is accusing JP Morgan of helping former Nigerian politicians steal from the government. Although JP Morgan is off the hook, this may not be the last we hear of this story.
Leading Investment banks worldwide by Revenue, Source: Statista
Cheapcoin
Worrying news for the crypto sector this week as the benchmark cryptocurrency Bitcoin has fallen below its instrumental $20,000 threshold for the first time since 2020. Many see the $20,000 level as a psychological barrier for Bitcoin that if it falls below, will damage confidence in the crypto sector and trigger large-scale sell-offs.
As prices continue to decline throughout the crypto space, institutional investors are likely to be forced to liquidate large-scale holdings in the highly volatile asset class. Last month Terra and Luna, two popular crypto tokens, both collapsed, costing investors hundreds of millions. News like this definitely does not give the confidence to invest in these coins in a time of such stress and uncertainty in the markets. The total crypto market value has fallen below $1tn after peaking at over $3tn last autumn.
Crypto 10 index, Source: Tradingview
Tesla on the chopping board
Tesla will propose a 3-to-1 stock split at the company’s next annual meeting according to proxy files submitted to the SEC. This would mean that there would be three times as many Tesla shares listed on the NASDAQ and their price would be divided by three, meaning at current prices each share would be worth $217. This stock split does not affect any other aspect of the stock, so there would be no other impact on the holdings of current Tesla shareholders.
The electric car manufacturers have said that the aim of the split is to help employees manage their stock benefits as well as to make shares “more accessible” to the public at a lower price, in order to help drive up the share price which has been rapidly declining since the start of April. This move follows both Amazon and Alphabet, whose shareholders approved 20 to 1 stock splits earlier this year. This could make Tesla stock more accessible to smaller retail investors, so it would be no surprise to see their market cap propped up after the split takes place.
Hope you enjoyed this week’s Market Wrap!
Patrick
Global Markets Technical Update
After another week of navigating highly volatile markets, I will once again be sharing the chart setups I will be using to trade from Monday in this week’s Market Wrap. The greatest influence on markets continues to be the combat against inflation and monetary policy with rate hikes from 3 major central banks hammering markets this week, 75bps from the Federal Reserve, 25bps from the Bank of England, and a surprisingly hawkish 50bps from the Swiss National Bank. The Bank of Japan went against the global trend of central bank tightening by maintaining their -0.1% short-term interest rate while reiterating that they will not hesitate to deploy further easing of monetary policy if necessary.
These developments have drastic implications on where global markets are headed, hence the necessity to provide an update on the technical picture across asset classes for anyone trading or investing during these uncertain times.
S&P500
S&P500
In the equity markets, S&P500 closed bearish yet again for the week down 5.84% at 3680. The decline from the previous week induced by the higher-than-expected US CPI figures was continued into the Fed Monetary Policy decision on Wednesday as markets priced in the much higher likelihood of a 75bps increase to the Fed Funds rate over the previously expected 50bps hike. A short-lived rally toward the 3810 level was seen proceeding with the decision to go with 75bps before equities came tumbling back down as the reality of the potential for a further 75bps hike in July and the impact this would have on equity valuations began to set in.
SPX trades just above the key 3666 level going into next week with the September 2020 high at 3585 being the area of support if this should break. If further declines ensue, a major capitulation toward the pre-COVID high would likely occur as there are no substantial levels in between. A relief rally back toward the 3875 level or the 4000 area at the downward trend line can be expected due to the severity of this downtrend however the chart shows weakness in any upside move in US stocks. Puts at the ready!
Key Resistance Levels:
· 3725
· 3810
· 3875
Key Support Levels:
· 3666
· 3585
· 3398
US 10Y Treasury Yield
A crazy week for US Treasuries was seen as the 10 Year Treasury yield printed a massive pin bar candle on the weekly chart, gaining by 0.055% to close the week at 3.231%. Yields its strong upside move toward the 3.5% psychological resistance at the start of the week as bond markets priced in the newly expected 75bps move from the Fed. The 10Y yield got rejected from this level again into the Thursday close and settled in the 3.20-3.28% range to close the week.
Going into next week, the 4H chart does appear slightly bearish with the strong double top rejection from the 3.5% level before struggling to get back above the 3.28% level. If the 3.2% level is breached expect a rally in US Treasuries which could also imply a simultaneous rally in the equity markets. Any significant comments from Jerome Powell during his testimony before the Senate on Wednesday and Thursday will likely drive bond prices.
Key Resistance Levels:
· 3.28%
· 3.50%
Key Support Levels:
· 3.20%
· 3.075%
· 3.00%
Japanese Yen
No doubt this week was a rocky road in the forex markets with the Japanese Yen sustaining a lot of volatility. USDJPY finished the week up 0.41% at 134.855 after holding up against strong upward moves in the DXY at the start of the week before taking a sharp dive toward 131.5 after the 75bps hike from the Fed as traders speculated on the possibility that the JCB policy statement on Friday may be more hawkish given the flight to tightening seen by other central banks during the week. This was not the case however as the JCB left the interest rate unchanged and added further confirmation to their unlimited bond purchasing program to maintain yield curve control. The news sparked a strong reversal with the yen firmly back in the 133.6-135.2 range.
These comments from the JCB provide merit toward the yen weakening further in the coming weeks with a breach of the 135.59 level certainly being possible especially if further increases to the bank's bond purchases are made. This would bring the yen into a range not seen since 1998.
Key Resistance Levels:
· 135.2
· 135.59
· 137.23
Key Support Levels:
· 134.5
· 133.6
· 131.5
Bitcoin
Another dark week for cryptocurrency markets saw $235 billion being wiped out of the total market cap with Bitcoin losing 28% of its value sitting at $19072 as of Saturday afternoon. After holding relatively strong against the US CPI release last Friday it didn’t take long for Bitcoin to join along with the selloff of risk assets, reaching the 20000 level on Wednesday. A slight relief rally to 23000 after the FOMC meeting was short-lived and the unconvincing upward pressure gave up early on Saturday with the key 20000 level being breached.
Bitcoin now resides below the 19640 2017 cycle high and if the price is maintained below this level for a sustained period of time, further significant downside is likely as there is little support between here and the 2019 high at 13880. A rally in equities and bonds will likely be needed to provide traders with any confidence to go long Bitcoin if there is to be any chance of regaining the key 20000 level.
Key Resistance Levels:
· 19640
· 25450
· 28020
Key Support Levels:
· 17570
· 16250
· 13880
See you in August,
Ronan
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.