NFP, CPI and Fed’s hawkishness

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The markets saw a significant boost in the past week as the rally from the first week of 2023 continued. Bitcoin and alternative cryptocurrencies continued to rise above the Nasdaq and S&P500 indexes. A lot of situational heat regarding the Genesis and Gemini issue had increased last week. While many allegations are flying, resolution of the issue is crucial and urgent.

What’s more gloomy are the recent continued hawkish stances by Fed and Jerome Powell. The pain and high-interest rates are expected to continue longer than most market participants’ expectations. The Fed realizes that any flinch of easing from their end will cause the markets to move drastically; hence, they are keeping a firm stance for the time being.

Source: Tradingview

Cases, Confusions, and Layoffs

While new statements have arisen from officials of Gemini and DCG, the DCG group has found itself within the claws of the DOJ in the US. The investigation was to determine any wrongdoing on the internal asset transfers end, as was seen in recent companies that went bust. Earlier this month, Binance was stopped from the purchase of Voyager. While it has finally received a green flag, this highlighted the high level of scrutiny companies in the crypto space face. Amidst the high uncertainty and attacks from regulatory bodies, companies must also factor in the drastically changing economic environment. A big effect of this which has started aggravating, is layoffs. Industry giants like Huobi, Coinbase, and NFT marketplace SuperRare are laying off more than 20%.

Asset management giant BlackRock has also started layoffs amidst a tough macro environment. While these are signs that the declaration of an official recession is nearby, the unemployment data and its effect on industrial productivity and subsequent financial changes will be seen soon and with good volatility.

Hawkishness Sustains

The age-old inflation/deflation debate has been rekindled with the upcoming release of the CPI data on Thursday, January 12. The consensus is that inflation is declining at this point. The CPI data will be a great setter of the rate hike that’s scheduled for February. With most expectations around the 6.5% mark, any number below or equal will create a bullish environment for a brief time. Any number above it will reinforce the Fed‘s stance on the need for consistent and high-interest rates. The last Fed meeting was a grave reminder of this.

Most Fed members now agree that the range of time for which high-interest rates are needed is long, and any pivot shouldn’t be expected any time soon. The inflationary pressure of the recent $1.7 Trillion expense bill, along with jobs data uncertainty, is creating absolute havoc, which is not expected to be solved any time soon. With the Russia-Ukraine war intensifying further, the volatility would be higher. While volatility brings a lot of opportunities, risk management in grabbing opportunities is crucial, and we intend to focus on doing the same.

NFP data outlook

The US stock and crypto market initially went up after the NFP report showed that the job market is still strong and wage-price spiral risks are going down. The Fed will keep tightening, but there is less chance of more hikes in the spring because there is more hope that wage pressures will continue to drop. The stock and crypto market’s initial rise, which was caused by the NFP report, slowed down, but it quickly got back on track after the ISM service index fell into contraction territory for the first time since May 2020. The December ISM Services report was fragile, which supports the idea that the service part of the economy is finally breaking. 

Source: Tradingview

Stocks and crypto are doing better now that the odds of a Fed rate hike are decreasing, but earnings risks should keep the gains from being too big. The focus will shift to next week’s inflation report, and traders shouldn’t be surprised if inflation falls even more than expected.

The Fed monitors this NFP report because the unemployment rate went down, but wage growth is slowing. They’d be happy if wages went down even more and unemployment didn’t rise. In December, the US economy added 223,000 jobs, which is close to the expected number of 203,000. The total job count for November was changed from 263,000 to 256,000. The economy is still adding jobs, but this is the slowest pace since December 2020. At 3.5%, the unemployment rate is at its lowest level since the 1960s. This economy is still in a recession, and the unemployment rate should rise soon. This situation could force the Fed to change course sooner or later.

The possibility of short-term deflation could catalyze the price of Bitcoin (BTC-USD) and other risky assets.

Bitcoin returns were 4.29% for this week. The Alpha Blue Chip Focused Strategy returns were 22.50% during the same period (5 JAN – 12 JAN). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were 12.83% and 3.85%, respectively.

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