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Business As Usual Despite Omicron

Investors hoping that Friday’s release of the November…

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This article was originally published by Zero Hedge

“Business As Usual” Despite Omicron?

By Jane Foley, head of FX strategy at Rabobank

Investors hoping that Friday’s release of the November US labor market would be a simple tick-box exercise for the Fed’s move towards policy normalisation were likely disappointed.  The headline non-farm payrolls report at 210K was only about half what the market had expected it to be, though the shock of this number was lessened by talk of a potentially unreliable seasonal adjustment in addition to a strong set of data from the household survey.  The latter showed a sharp drop in the unemployment rate to just 4.2% in November.  For many this will have been sufficient for the Fed to continue preparing to announce a hastening in the pace of tapering of its bond buying program at the December 14/15 FOMC meeting.  After a volatile fortnight on the back of fears of a more hawkish Fed, the Nasdaq closed down 1.92% on Friday.  While Asian stocks this morning mostly followed US stocks lower, futures are showing signs of resilience. 

Despite the confusion surrounding the economic implications from the Omicron variant, Fed Chair Powell and other FOMC members had suggested a ‘business as usual’ approach to policy last week by suggesting that a hastening in the pace of QE tapering very much remained on the cards.  The fact that the market consensus for this week’s US November CPI inflation release stands at a eye-watering 6.7% y/y will be seen by some as an endorsement of the Fed’s hawkish tone. 

That said, the IMF has warned of growth risks stemming from Omicron and other central banks seem prepared to take a more cautious approach.  The BoE’s Chief hawk Saunders, who voted for a rate hike in November, suggested on Friday that he would like more information on Omicron before deciding how to vote on policy next week.  The UK money market has backed away from fully pricing in a BoE rate hike for December, though a February move is still on the cards.  Both the BoC and the RBA are due to meet this week and steady policy is expected from both.  Omicron is likely to provide the RBA with further reason to extend its already dovish position.  That said, the strong rise in Canadian employment in November is feeding speculation that the BoC could bring forward rate hikes, with April being touted by commentators as a possible start date for policy tightening. 

There have been various headlines in recent days in a slew of countries about additional restrictions being put in place in an effort to slow the transmission of Covid.  Over the weekend police in Belgian used water cannon and tear-gas to disperse violent protests against fresh restrictions.  Germany last week announced social curbs on the unvaccinated while Greece introduced fines on the over-60s who refuse to be jabbed.

As evidenced by the protests, none of this sits comfortably in liberal democracies with some premiers, such as UK PM Johnson, likely very nervous of a backlash from any further fresh restriction.  Omicron has now been detected in seventeen EU countries and US data suggest that Omicron has spread to around one–third of US states, though Delta remains the dominant variant.  Encouraging there have been several press reports indicating that while Omicron may increase the risk of transmission, the symptoms may be milder.  This view was endorsed by US infectious disease official Fauci over the weekend who commented that “thus far it does not look like there’s a great degree of severity to it.”  That said, S. Africa is preparing its hospitals for more admission, though its low vaccine rollout rate will be a factor.

Bitcoin took a tumble over the weekend as profit-taking picked up momentum.  Gold found support on the fall back in longer term bond yields and oil prices picked up some support after Saudi Arabia raised prices for crude sold to Asia and the US.  No real progress appears to have been made on reviving the nuclear deal between the US and Iran.

Week ahead

President’s Biden and Putin will speak via video call on Tuesday amid mounting tensions over Ukraine.  This follows reports from US Secretary of State that there was evidence that Russia had made plans for a ‘large scale’ attack on Ukraine.  It is expected the Biden will reaffirm US support for the sovereignty and territorial integrity of Ukraine. Bloomberg news have reported that over the weekend there was a ‘testy exchange’ between US Secretary of State Blinken and Russian Foreign Minister Lavrov over Ukraine with the former recapping events in 2014 when more than 100 people participating in a peaceful protests were killed.

Evergrande is back in the headlines this morning following a statement from the Chinese property developers on Friday saying that creditors had demanded USD260 million and that it could not guarantee enough funds.  Chinese government officials summoned Evergrande’s Chair and the PBoC has stepped up its criticism of the company accusing it of ‘poor management’ and pursing ‘blind expansion’.  Reports in Chinese state media that Beijing will cut banks’ reserve requirement ratio ‘in a timely way’ lent a little support to mainland Chinese blue chips overnight

A decidedly weak -6.9% m/m print for October Germany factory orders this morning is a sharp reminder of the headwinds facing the Eurozone’s largest economy.  Tomorrow, German ZEW survey data is also expected to soften.  Key UK data this week includes monthly GDP data and production numbers for October.  In addition to the November CPI inflation data, the US calendar also includes the December Michigan confidence survey.  Ahead of next weeks Fed, ECB, BoE and BoJ policy meetings little additional direction can be expected from central bankers leaving more room for investors to seek clues from this week’s BoC and RBA policy meetings. 

Tyler Durden Mon, 12/06/2021 – 09:30

Author: Tyler Durden

Economics

This Isn’t the Time to Buy Shiba Inu

It’s not been the easiest couple of months for cryptocurrency. The major cryptos have slumped in price as investor sentiment has waned. Meanwhile, it’s…

It’s not been the easiest couple of months for cryptocurrency. The major cryptos have slumped in price as investor sentiment has waned. Meanwhile, it’s a bloodbath in smaller altcoins. Shiba Inu (CCC:SHIB-USD), for example, has slumped from a peak of 0.000080 last summer to just 0.000025 now.

Concept red tokens for the Shiba Inu (SHIB) cryptocurrency.Source: Shutterstock

That represents a more than 60% decline for Shiba Inu holders since the peak back in October. Shiba’s decline is hardly extraordinary. Other animal-themed cryptos such as Dogecoin (CCC:DOGE-USD) have suffered painful losses as well.

A general sense of apathy is starting to set in across the crypto ecosystem. El Salvador’s highly-anticipated Bitcoin experiment appears to be struggling. Rating agency Moody’s just downgraded that country’s debt, citing rising risk from its Bitcoin experiment.

This will likely slow adoption by other foreign governments. For another, prominent crypto exchange Crypto.com just got hit with a major hack, and lost $15 million of funds. Those are just two of the various headwinds affecting the crypto market right now.

A Rough Time for Bitcoin and Crypto

Bitcoin has lost roughly 40% of its value since its recent peak. And the carnage is much worse in most of the smaller cryptocurrencies and tokens. Liquidity is drying up across many non-fungible token (NFT) and other such new projects and ecosystems.

This seems to be coming in part due to the huge drop in speculative growth and technology assets. The Federal Reserve has indicated that it will be rapidly tightening monetary policy and is leaning toward imminent rate hikes as well. This should serve as a deflationary force to counteract last year’s rapid climb in both asset and consumer product prices.

In times of diminishing market liquidity, risky assets with minimal profits and cash flows tend to fall the most quickly. Cryptocurrency, inherently, generates very little in economic profit. Much of the interest in crypto, by contrast, is to hedge again runaway inflation and out-of-control central bankers.

With the Fed slamming the breaks on inflation and speculative assets, however, crypto has fallen into a major slump. This slide has spread into crypto-related equities as well. Names such as Microstrategy (NASDAQ:MSTR) and crypto bank Silvergate Capital (NYSE:SI) have plummeted in recent weeks.

During Bear Markets, Stick to Quality

There’s a well-known pattern in investing. During rising bull markets, you see a dispersion across various assets. The concentration of funds in leading assets declines. People sell some of their larger more stable holdings to take a chance on smaller, newer, or riskier plays. As it pertains to stocks, this would be people selling down their FAANG holdings to buy an exciting new electric vehicle or quantum computing kind of stock.

Within crypto, you can see this concentration by looking at the portion of funds in major coins. During good times, the dominance — or market share — of Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD) and other leaders will fall. People sell some of their BTC and buy hot new emerging projects. Or perhaps even meme tokens.

During bear markets, such as what crypto faces now, however, people return to the safe havens. Anything with a shaky or uncertain future is sold, and the funds are moved back into more secure plays such as Bitcoin or Stablecoins tied to the value of the U.S. Dollar. While Bitcoin is down 40% from its peak, many smaller cryptos are off 70%, 80%, or even more over the same stretch.

A big part of quality, as it pertains to crypto, is utility. Does the coin or token accomplish much actual function for users? Bitcoin is a store of value and has the biggest brand. Ethereum has the most well-known decentralized finance “DeFi” platform with lots of lending applications on it. Solana (CCC:SOL-USD) has emerged as a low-cost alternative for new crypto projects such as NFT collections. But what is Shiba Inu useful for? As of now, there’s almost no utility to the Shiba Inu token.

Bottom Line

Cryptocurrency is in a difficult place right now. Liquidity is down. The Federal Reserve is reining in excessive speculation in financial markets. Hackers have hit crypto in recent days. And the list goes on. This is not an easy time to be allocating funds to the cryptocurrency marketplace.

Given that backdrop, traders should stick to high-quality cryptos for the time being. If and when the quality names find their footing, then it might be time to start diving deeper into the lower-tier altcoins. For now, though, tokens such as Shiba Inu that have little value beyond their memetic appeal will remain in the doghouse.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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Commodities: Oil rally pauses, Gold lower, Bitcoin breaks $40k

Oil Energy traders were not surprised to see the oil price rally slow down.  WTI crude fell after a surprise build with US stockpiles and following a…

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Energy traders were not surprised to see the oil price rally slow down.  WTI crude fell after a surprise build with US stockpiles and following a bloodbath on Wall Street that sent risky assets into freefall. Crude prices may not have a one-way ticket to $100 oil, but the supply-side fundamentals certainly support that could happen by the summer.  The next few trading sessions could be difficult for energy traders as oil prices may move more so on investor positioning ahead of Wednesday’s FOMC policy decision and over a handful of brewing geopolitical risks, that include Russia-Ukraine tensions, Iran nuclear talks, and developments with global handling over North Korea. 

The crude demand outlook is also providing steadily positive support for oil prices throughout the rest of the year.  Schlumberger CEO Olivier Le Peuch, noted, “Absent any further COVID-related disruption, oil demand is expected to exceed pre-pandemic levels before the end of the year and to further strengthen in 2023.” The oil market should remain very tight and if we have any disruptions to productions, that should easily send prices much higher. 

Gold

Gold prices edged lower as commodities got punished after Wall Street entered into a major de-risking mode.  Normally gold performs well when Treasury yields drop, but today was all about going back to cash. Earnings have underwhelmed and fears of how the economy will handle higher interest rates has many investors concerned that risky assets could continue to slide further next week. 

Given that large parts of the economy will still perform well this year despite higher borrowing costs, gold will eventually find the right balance of becoming both a safe-haven and inflation hedge.  Gold most likely won’t be vulnerable to an excessive panic-selling market selloff given how strong the economy is positioned, so if prices can break past the $1850 barrier post-Fed, the path to $1900 should be there. 

Bitcoin

Bitcoin has quickly gone from a consolidation pattern to the house of pain.  The world’s largest crypto plunged as crypto traders de-risk portfolios following the bloodbath in stocks and in advance of next week’s FOMC policy meeting. Risky assets did not stand a chance today and momentum selling accelerated after Bitcoin broke below $40,000 level. Bitcoin remains in the danger zone and if $37,000 breaks, there is not much support until the $30,000 level.   

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US Close: Market jitters ahead of Fed and massive earnings week, Netflix tanks

Wall Street has gone from debating how aggressive one should rotate out of tech into cyclicals, to sell it all. US stocks have been on a rollercoaster…

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Wall Street has gone from debating how aggressive one should rotate out of tech into cyclicals, to sell it all. US stocks have been on a rollercoaster ride after abysmal results from Netflix. Investors have two big worries:  it seems every day traders are reminded inflationary pressures are not going away anytime soon and could prompt the Fed into becoming overly aggressive in tightening monetary policy. The other concern is that profit growth expectations may have been too optimistic and underpriced in the ballooning labor costs. Geopolitical risks are also adding fuel to the selling pressure.

Next week will be massive for tech earnings as Apple, Microsoft, Tesla, and Samsung report. Netflix shocked and if the other mega-cap giants hugely disappoint, the Nasdaq will be in trouble.

Netflix

Netflix shares collapsed over 20% after delivering disappointing subscriber guidance for the first quarter.  The streaming giant acknowledged that the competition has intensified and the impact to COVID disruptions is still being felt. The company is still posting strong revenue numbers and has a strong revenue outlook and has growth potential outside of North America.

It comes as no surprise that after today’s plunge, at least nine firms lowered their ratings for Netflix.  Netflix is still the king of content and while this is the first heavyweight to post a rather disappointing outlook, it really isn’t that bad.  The mega-cap stock’s overall subscriber growth for the past few quarters was solid, and it could easily be expected that the first quarter would be soft as many people will be returning to pre-COVID behavior. 

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