January 22, 2024

Market run-through

Worldwide markets continue to row back from their expectations of an aggressive series of rate cuts this year as economies continue to show unexpected resilience, as does inflation. Last week, it was the UK’s turn to serve an inflation surprise when December’s CPI was reported to have bounced back. 

Traders immediately repriced the chances of the Bank of England cutting rates helping sterling stay bid. However, Friday’s Retail Sales in the UK were disappointing, showing the sharpest drop since COVID-19 affected figures in 2019. 

On reflection, the figures were slightly confusing as the larger supermarkets in the UK reported solid sales figures for the same period. Some analysts suggested that the weather was to blame, while others suggested that Christmas purchases had been brought to November. It is a case of more questions than answers and leaves us waiting for further data in February.

This week, the first of the major central banks meet (European Central Bank). As usual, the messages from the ECB have, being kind, been mixed with President Christine Lagarde contradicting herself, having at first said that the aggressive market pricing was self-defeating, then saying that the ECB would cut rates by the summer. Even for Madame Lagarde, that was a rapid switch. 

She gets another chance on Thursday at the press conference after the council’s meeting, and it is widely expected that she will stress that any rate cuts will be data-dependent. Elsewhere, S&P will publish their Purchasing Managers Indexes, which should shed some more light on the state of the world’s economies, and in the US Fourth Quarter, GDP should show strength at 2.5%. There is plenty to watch out for this week, and we are here, of course, to help you.

Richard Matthews, Head of FX and Payment Partnerships

Behind the desk

We’ve had time to allow the dust to settle and it is interesting to observe the dynamics of the cryptocurrency market, especially in response to significant events like the approval of Bitcoin ETFs. I believe the initial surge in price followed by a subsequent drop is indeed a common pattern in financial markets, often attributed to the “buy the rumour, sell the news” phenomenon.

Market reactions can be influenced by various factors, including profit-taking by large investors (crypto whales), speculative trading, and short-term market sentiment. The quick price movement around the approval of the BTC ETF could have triggered profit-taking among those who bought in anticipation of the news.

The fact that the price held around the $40,000 level suggests ongoing support and interest from long-term holders and institutional investors. This stability indicates a certain level of confidence in the market, therefore I still remain bullish. The crypto market is known for its volatility, and short-term price fluctuations are common therefore I’m not scared of a little retracement in the midst of broader bullish sentiment.

Negative views and warnings from regulatory bodies in certain countries, like Thailand and Singapore, are also worth noting. Regulatory developments can have a significant impact on market sentiment and investor confidence. It’s essential to keep an eye on how various countries and regions approach cryptocurrency regulations, as this can influence the adoption and acceptance of crypto assets.

The trading desk reports consistent volume in BTC transactions, this is an encouraging sign for the market, indicating ongoing interest and activity. ETH however has seen a decline but the fluctuation in ETH transactions could be due to various factors, such as changes in market sentiment, developments specific to Ethereum, or shifting investor preferences.

As the crypto space continues to evolve, it will be interesting to see how regulatory developments, technological advancements, and market sentiment shape the future of cryptocurrencies. I am optimistic about the crypto space and encourage all to keep monitoring key developments and market trends to make informed decisions in this dynamic space.

Alex-Desmond Brathwaite, Senior Trader

Chart of the week

An upside surprise in the weekly jobless claims data is just the latest US economic report pointing to both the increasing likelihood of a ‘soft landing’, in addition to providing further evidence that the market is likely still far too ambitious in its pricing for the year ahead policy outlook.

Not only did initial claims fall to their lowest level since September 2022, back below 200k, the 3-month average of claims, which helps to smooth out some of the ‘noise’ in the figures, is now close to its lowest level in a year – all data which clearly points to continued labour market resilience despite the lagged impacts of the Fed’s tightening cycle. Other data this week also surprised to the upside, including the festive retail sales report, yet markets continue to price over 140bp of easing this year, as well as seeing a 25bp cut as soon as March as a coin-flip.

Even hawkish commentary from the Fed’s Waller fell largely on deaf ears. At this stage, one wonders what it will take for markets to realise that they are still being overly ambitious in the rate path being priced.

Michael Brown, Market Analyst at Pepperstone

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