Swissquote: Risk-off

Swissquote: Risk-off

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By Ipek Ozkardeskaya, Senior Analyst, Swissquote

Cryptocurrencies had an agitated weekend, with a 20% drop recorded in Bitcoin’s price on Saturday to as low as $42K per coin. Only half of the losses have been recovered so far. But the Saturday drop raised a big question for the crypto traders: is it an opportunity to buy the dip?

No one has a crystal ball to tell what will happen to Bitcoin within the next month, but one thing is certain: the past couple of weeks helped us ruling out the idea that Bitcoin is a safe haven asset, and that it is a hedge against inflation. Bitcoin is a very high-risk asset, and it is not a proven hedge against inflation. The selloff could extend on Monday, as many institutions are yet to decide, coming back to the office this morning, whether it is a good idea to buy the dip or liquidate some positions. It will certainly depend on the overall risk appetite.  

Because the weekend selloff in Bitcoin was likely the continuation of the heavy selloff in the US equity markets following a mixed US jobs report before the weekly close. The US economy added some 210’000 new nonfarm jobs in November, which was much less than 550K penciled in by analysts, but the participation rate improved, and the unemployment rate fell surprisingly to 4.2% from 4.6% printed a month earlier, and versus 4.5% expected by the market.  

For a second, investors didn’t know how to interpret the data! The nonfarm payrolls were significantly weaker than expected, but the Federal Reserve (Fed) can’t do much to improve it, as it must do something about inflation first. But also, the unemployment rate hints that the conditions in the US jobs market are improving faster than expected, so the Fed could even quicken the QE taper and proceed with the first rate hike earlier than we thought before the latest NFP data.  

In summary, the combination of ‘oops the NFP number looks bad but there’s nothing to do’, and ‘actually the overall jobs data looks good enough to allow the Fed moving quicker on the QE taper front’ is what really wreaked havoc in the market on Friday. The news boosted the probability of a potential first rate hike as early as in May. 

All three major US indices fell, but Nasdaq suffered the most with almost 2% drop into the close.. The bloodbath in Chinese equities didn’t help, and that was mostly due to the fact that these Chinese companies will likely be delisted from the US stock exchanges. 

Inflation is the biggest joykiller for the week 

We will be talking a lot about inflation this week, as last week, the Fed Chair Jerome Powell finally said that inflation is ‘not transitory’, and Fed action is needed to tame the pressure.  

This week’s CPI data, due Friday, will be of a monumental importance for the market mood. The US consumer price inflation is expected to have advanced to 6.7%, the highest levels seen since 1982. And given that we had only bad surprises on the inflation front for the past months, no investors will walk into these numbers light-heartedly. However, now that the expectations are strong enough, there is a chance that we see a ‘positive’ surprise on Friday. Yet the investor mood could hardly improve significantly before the release of the CPI data. The US equity futures are up in a mixed Asian session, yet the mood swings tend to happen quite fast these days, and the volatility is going up.