“Extreme Fear” in Crypto As The Market Weakens on Monday on Expectations of “Aggressive Tightening”
The price action faltered after the initial risk-on with all eyes will be on the consumer price report due on Friday. The USD index is near its 17-month high and dollar long positions highest since June 2019.
Last week, the market was spooked by the mixed US jobs report that has investors now expecting a more aggressive tightening by the Federal Reserve.
US payrolls were underwhelmed in November, but at the same time, there was a 1.1 million jump in jobs that pushed unemployment down to 4.2%.
“We think the Fed will view the economy as much closer to full employment than previously thought,” said Barclays economist Michael Gapen.
“Hence, we expect an accelerated taper at the December meeting, followed by the first rate hike in March.”
I've been a trader for 8 years, every 18 months or so we have this conversation about how this time the Fed is really going to taper and raise rates. It has never fucking happened it is never going to happen. Big bear market rally when market soon realizes this is the case, imo
— wantonwallet (@wantonwallet) December 6, 2021
This week all eyes will be on the consumer price report due on Friday. The key US inflation figure will tell the market more about the early tapering and increase in interest rates.
As Omicron emerged in more countries, Asian share markets had a cautious start on Monday. While the new COVID-19 variant remains a concern, there are reports that cases had mild symptoms.
There was slight risk-on price action in the new week that saw crypto assets recording a small uptick. After momentarily going for $49,455, Bitcoin slid back down towards $47,000. As for Ether, it is back under $4k after recovering to $4,255 over the weekend.
The total crypto market cap is still struggling under $2.3 trillion as the sentiments turn to “extreme fear,” at a level not seen since July.
In the global stocks market, Japan's Nikkei eased some despite the government considering raising its economic growth forecast to account for a record $490 billion stimulus package.
On Wall Street, after the worst start of December in two decades, S&P 500 added 0.4%, and Nasdaq futures 0.1%.
But with the Fed turning increasingly hawkish, BofA chief investment strategist Michael Hartnett is bearish on equities for next year as he expects a “rates shock” and a tightening of financial conditions while favoring real estate, commodities, volatility, and cash.
Short-term Treasury yields are now being pushed higher. Ten-year U.S. yields also rose off but are still down from 1.669% two weeks back.
The USD index remained around 96.25, near the 17-month high of 96.9, which it hit in late November. As we reported, dollar-long positions have also climbed to the highest since June 2019.
“We expect the dollar to rise as markets price in more rate hikes,” said Commonwealth Bank of Australia strategist Kim Mundy.
“This week’s November CPI data could trigger markets to price in a more aggressive tightening cycle.”
Recall the Fed was hawkish 1H’21 and the taper tantrums of May 2021? What about the 2013 taper tantrums?
False alarms. The Fed supported Wall St by buying $11 trillion of assets in 18months, spurring a $56 trillion surge in global equity market cap.
— Mira Christanto (@asiahodl) December 4, 2021
Much like risky assets, gold has also been getting hit since mid-November, when it was around $1,875 per ounce to slide down to $1,760 on Friday. Currently, the bullion is trading under $1,780.
The safe-haven yen has also eased some with the cautiously brighter mood this Monday, though a bumpy ride ahead looms with Omicron and U.S. inflation data. Next week the Fed, European Central Bank (ECB), Bank of England (BOE), and Bank of Japan (BOJ) will be meeting.
“Omicron headlines are moving in the right direction, and the risk-off sentiment may ease off soon,” said analysts at OCBC Bank in Singapore.