🗞 Weekly Market Newsletter | Edition No. 36
Major News Update + A Full Analysis of Major Indices Including Stocks, Crypto, Commodities, Bonds & Forex
Sunday, March 26th, 2023
Hello Friends,
We’ve made it through another rate decision event, emerging unscathed from the Federal Reserve's much-anticipated announcement.
The markets seem to have reacted more calmly than anticipated to the 25 basis points (bps) hike announced on Wednesday.
So, what does this mean for the markets, and where might we be headed?
First and foremost, we cannot forget that leading into this week, financial hysteria was surrounding U.S. banks sitting on unrealized losses amounting to $1.7 trillion.
These losses are largely due to holding devalued U.S. debt instruments (Treasuries), which have experienced a significant sell-off as a result of rising Fed Funds rates.
This contagion appeared to have been making waves internationally, as it brought an end to the reign of the 167-year-old banking corporation Credit Suisse.
The institution's collapse served as a stark reminder of the potential ripple effects that can stem from the challenges faced by even the most established financial institutions.
The concern remains as to whether more banks will continue to fold in the coming days and weeks.
The Federal Reserve's continued path of rate hikes may place increasing pressure on the balance sheets of financial institutions globally.
With the U.S. national debt continuing to grow, there are concerns that further rate hikes could exacerbate the situation, potentially leading to more bank failures and a broader impact on the global economy.
The timing of the current financial volatility is peculiar, as we are simultaneously witnessing the early stages of de-dollarization by foreign nations that have been under the influence of the U.S. Dollar for the last century.
De-dollarization refers to the process by which countries reduce their reliance on the U.S. Dollar as their primary reserve currency and means of international trade.
This shift can occur for various reasons, including geopolitical tensions, economic instability, or a desire to diversify away from a single dominant currency.
Historically, all global reserve currencies have experienced a decline in influence and eventually lost their status, often due to shifting economic and political landscapes.
Just this week, Chinese leader Xi Jinping flew to Moscow to meet with Russian President Putin to discuss matters of foreign trade, in addition to addressing the ongoing tensions with Ukraine.
These talks could potentially involve exploring alternatives to the U.S. Dollar for their bilateral trade and financial transactions, further contributing to the process of de-dollarization.
Adding to the heat of the moment, over the past 72 hours, a number of reports have confirmed attacks on U.S. military bases in Syria. Simultaneously, speculation has arisen that Russia may be considering stationing nuclear weapons in Belarus.
These developments add further complexity to the geopolitical landscape and could potentially accelerate the shift away from the U.S. Dollar as the dominant global reserve currency.
As a result, investors, from everyday retail participants to large-scale institutional portfolio hedge fund managers, are left with the critical question: where is the optimal risk-reward in the market right now for maximum yield, or at the very least, minimizing loss in the event of a black swan collapse or further deterioration of capital markets?
It’s becoming increasingly difficult to envision a future with a U.S. Dollar dominating the global financial landscape.
In fact, the President of Kenya was recently quoted offering "free" advice to his citizens, urging them to begin divesting from the U.S. Dollar as he warns that the economic system may undergo significant changes in the coming times.
Given these uncertainties, as investors we ought to seek investment strategies and asset classes to hedge against potential risks.
Typically we would ensure our portfolio’s are diversified with a mix of traditional and alternative investments, such as precious metals, cryptocurrencies, real estate (well, perhaps prior to these rate hikes) to help protect against fluctuations in the value of the U.S. Dollar and other global reserve currencies.
As we survey the various asset classes, there isn't a clear-cut winner or safe haven to be found:
Cryptocurrencies remain in regulatory limbo globally, making the risk-reward the highest out of all possible asset classes. This makes them an attractive hedge for those who believe the future of our digital economy and financial payment rails will transition into blockchain-based technologies.
Real Estate is facing a pricing downturn and a slowdown in demand, as tighter credit availability and high interest rates are stifling the market.
Metals such as Gold & Silver are sought after as hedges against inflation (or devaluing of fiat currencies). However, most investors are not about to allocate the majority of their wealth to gold bars anytime soon.
Market analysts from top investment institutions continue to caution that a recession may still be looming. Historically, a drastic downturn in capital markets has been the endgame when the Fed eventually pivots on rates. So, the question remains: are stocks safe yet?
Perhaps in the uncertainty lies the biggest clue: with no safe haven to be found, maybe the immediate future belongs to risk.
When I say risk, I do not mean roulette - that's gambling.
When I say risk, I mean fundamentally strong, risk-oriented assets that are positioned immaculately for the onset of a paradigm shift in the global economy. Some sectors poised to play a crucial role in the projected economy of 2030-2040 include:
Renewable Energy Producers
Artificial Intelligence
Blockchain and Cryptocurrencies
Communications
Biotechnology and Genomics
Robotics and Automation
Electric Vehicles and Advanced Transportation
Advanced Manufacturing
Sustainable Agriculture
Cybersecurity
Risk assets, such as the ones listed above, generally have a higher potential for returns, but also carry a higher degree of uncertainty and volatility compared to safer asset classes.
Safer asset classes, on the other hand, typically offer more stability and predictability in terms of returns, but may not provide the same growth potential as risk assets.
Examples of safer asset classes include government bonds, blue-chip stocks, and real estate investment trusts (REITs).
In times of uncertainty and economic transition, investing in risk assets can offer exposure to new technologies and industries that are projected to drive future growth.
And if there was ever a moment that I would encourage you to take a step back and ask yourself; what the hell is going on in the world and where is all of this heading - it’s now.
In times when the world feels uncertain, it's worth considering that perhaps something we could never have predicted is about to peak over the horizon.
Perhaps speculation or risk is the new safe, and those who thought safety was bank deposits, long-term government debt, and blue-chip stocks are about to get a wake-up call from a change in the direction of humanity.
As we stand at the precipice of a new era, driven by technological advancements, environmental imperatives, and shifting geopolitical power dynamics, it is quite possible that capital will begin to flow into these risk assets and new sectors, fueling the next wave of innovation and prosperity.
The financial system and the world as we know it are transforming before our very eyes, and with this transformation comes the opportunity to redefine what constitutes a safe investment.
In this brave new world, the investors who can see beyond the horizon, embracing the risks and potential rewards of emerging industries, may find themselves at the forefront of a new global order.
As we navigate this uncharted territory, it is essential to remain vigilant, adaptable, and open to the possibilities that lie ahead.
For those willing to take calculated risks and invest in the pioneers shaping our future, the rewards may be beyond anything we have ever imagined.
These are the thoughts I leave with you heading into this weeks edition,
- Matthew Fox
💈 Fox MetaCapital’s Weekly Poll
In April I will be hosting our first community zoom event and you’re all invited to join - I’ll be sending out official details in the coming days.
The event itinerary:
Minutes 0-5: Introduction & Hello’s
Minutes 5-30: Community Discussion re: Markets & News
Minutes 30 - 45: Chart Requests and Technical Analysis
Minutes 45 - 60+: Q&A
📰 Fox MetaCapital’s Weekly News Recap
You may press the 🗞 to read more about each headline.
Major News + Crypto Headlines
In this weeks news summary I’ll be combining the following headlines into our weekly recap:
White House Releases Economic Report;
Trashing TalkingDownplaying Digital Assets.The SEC is power tripping; Lawsuits Galore vs. Influencers (Jake Paul et al.) + Tron Founder Justin Sun + U.S Public Crypto Exchange Coinbase
$XRP; soon to be the only digital asset with regulatory clarity?
💭 Matthew’s Thoughts…
In my opinion, the recent statement (read the full report here) from the White House, claiming that crypto assets do not offer any fundamental value nor act as an effective alternative to fiat money, appears to be a strategic move by the government to prepare for a shift in technology and financial systems.
A golden rule of capitalism is to consider capital markets as operating under a 'wholesale-to-retail' supply chain model.
It's crucial for the major institutions of tomorrow, including both private and public entities, as well as governments, to stake their claim in the future by positioning their resources several steps ahead of the masses they control.
Once these new investment classes have been acquired in quantity and legislation has been written to tax them, it will be time to formally welcome them into society with a substantial markup.
Therefore, by downplaying the potential of cryptocurrencies, the government may be attempting to control the development and adoption of these digital assets to ensure that major players in the market remain stable and maintain their dominance.
As we've previously discussed, the ongoing process of de-dollarization and the risks in the economy indicate that we are on the cusp of a significant transformation in the global financial landscape. This transformation will likely be characterized by the adoption of new technologies, such as cryptocurrencies and distributed ledger technologies (DLTs).
In the face of these imminent changes, it is understandable that the U.S. government, which has benefited from the dominant position of the U.S. Dollar as the global reserve currency, would be cautious in its approach to formally adopting these technologies. By taking a conservative stance, the government can ensure that it maintains control over the unfolding situation and protect its interests.
We see this ‘conservative stance’ as a common theme emerging through very special branches of Government (many of these divisions are speculated to in fact run the country, contrary to the illusion of congress and a sitting President) such as the SEC, who are often perceived as the official bodyguards—or bullies—of the U.S. capital markets.
It seems that the U.S. government does not want the public seeking financial refuge in cryptocurrencies ahead of their timely schedule, and they're making that very clear by choking any public promotion of these technologies and restricting access to the platforms that enable users to convert their U.S. Dollars into digital assets.
While the government's report on digital assets acknowledges that crypto assets may not currently offer widespread economic benefits in their unregulated state, they agree that the underlying technology will have productive uses in the future.
We must interpret this stance as the U.S. government keeping a close eye on the development of cryptocurrencies and DLTs, preparing to take advantage of any opportunities that may arise as the technology matures and pacing their allowance of the industry's growth with perpetual assessments of the weakening dollar and failure of existing legacy financial systems.
What do I think?
I think blockchain and a few important digital assets are secretly acting as the pocket aces in the poker hand of the U.S. government, but they're playing as if they have no good cards left.
What will be the trigger for them to lay their hand?
Perhaps a saving grace from the benefits of a U.S. CBDC.
Should we continue to witness an implosion of banks, both in the U.S and internationally, a liquidity bail-in may be required to maintain economic homeostasis.
Continued liquidity injections effectively will turn into eventual quantitative easing, again - thus the devaluation of the dollar still appears inevitable.
The development of a potential U.S. Central Bank Digital Currency (CBDC) and their FedNow initiative will help modernize the nation's financial infrastructure without the risks associated with blindly allowing all 20,000 cryptocurrencies to run wild as speculative investments.
Properly designed CBDCs, driven by economic principles, would offer significant benefits to consumers and businesses while allowing the government to maintain control over its monetary policy.
Which is why we must ensure we are paying close attention to companies such as Ripple and Coinbase, who are arguably the most compliant with U.S. laws and regulations, meanwhile representing U.S. innovation as global leaders in the space.
The very fact they are the ones being litigated feels suspicious to me.
It feels like a shakeout.
Because these two entities would have to play a crucial role in shaping the future of the U.S. blockchain-based financial system and ensuring stability in the face of rapid technological advancements, thus suing them appears more so like a strategy to set precedent and pick winners rather than let the free global market race them in the process.
The possible reasoning behind the U.S. government's decision to target Ripple and Coinbase with litigation, while they are seemingly the most law-abiding entities in the space, could be to showcase their power over the industry, ultimately determining which organizations will emerge as the winners in the blockchain revolution.
By picking these companies out of the group and suing them, the government may be using a slight of hand strategy to establish dominance and assert control over the direction of the emerging digital asset market.
Cluing up the weekly summary, we have no further FOMC events until May 2nd, thus the market will have an opportunity to breathe for a month and we’ll watch to see how the on-going events unfold week to week.
My eyes will be now watching for headlines surrounding;
Crypto Regulations; SEC v. Ripple / Coinbase Lawsuit(s)
Economic Data Reports; Labour Market and CPI +/-
Strength of Stock Market; Q1 23’ Corporate Earnings
Geopolitical Black Swans re: Russia / China developments.
Pending Liquidity Crisis; Problem, Reaction, Solution
Fox MetaCapital’s Weekly Asset Review + Technical Analysis
📈📉 The Week Ahead in Charts
Symbols 📈 or 🐂 = Bullish / Positive | 📉 or 🧸 = Bearish or Negative | ⚖️ Ranging or Low Volatility
FOREX
📉 DXY(U.S Dollar) + ⚖️ CAD
💬 Matthew’s Commentary, Analysis & Prediction for the Week Ahead:
This week, for the major indices, I've added orange vertical lines to signal the remaining FOMC interest rate decisions, which I believe will serve as significant pillars and pivots, shaping the market's appetite for risk.
I'm expecting the DXY to weaken and fall into the low 100s, potentially sweeping the high 90s to clear a higher timeframe FVG dating from April 2022. At the time of writing, the dollar has opened the week showing weakness, which aligns with my expectations.
Given that risk assets tend to be inversely related to the strength of the dollar, I'm anticipating a positive week for stocks and cryptocurrencies.
This projection ties in with our earlier discussions regarding the uncertainties in the global economy, such as de-dollarization and the potential shift towards digital assets in the face of global solvency and liquidity fears.
🎯 For the week ahead, I foresee a trading range for the DXY between 101.5 and 103.75, with an end-of-week target down to 101.75.
Featured Chart DXY 1D (click to enlarge photo)
The Canadian Dollar has been trading within the range of an inside 2D bar and weekly inside bar between 0.7225 and 0.7325. An inside bar is a price action pattern where the high and low of a particular period are completely within the range of the preceding period. This pattern often indicates market indecision and can be a precursor to a significant breakout in either direction.
I'm expecting the Canadian Dollar to break out from this range in the coming weeks and deviate back to 0.75 by mid-summer.
For investors to add demand for the Canadian Dollar, we will want to watch for headlines in the energy and banking sectors, as they represent Canada's strongest sectors.
The performance of these industries can have a significant impact on the Canadian economy, and thus, on the value of the Canadian Dollar.
The energy sector, which includes oil, gas, and renewable energy, is particularly crucial for Canada due to its vast natural resources and the country's status as a major exporter of oil and gas.
Any positive news or developments in this sector could lead to an increase in the value of the Canadian Dollar, as global demand for energy drives economic growth.
Similarly, the banking sector is a key driver of the Canadian economy, with several large financial institutions playing a significant role in both the domestic and international markets.
Stability and growth in the banking sector can contribute to a stronger Canadian Dollar, as investors perceive the country's financial system as robust and resilient - a far cry from what we’re observing in the U.S at the moment.
Featured Chart CAD 1D (click to enlarge photo)
Equities
📈 S&P500 + 📉 TSX + 📉 VIX
💬 Matthew’s Commentary, Analysis & Prediction for the Week Ahead:
While many chart analysts and economists are busy projecting an impending equity market downturn, I'm adopting a contrarian position, targeting the S&P 500 to continue its upward trajectory into the 4200 region.
My theory is based on the belief that current monetary policies might not successfully bring inflation back to the 2% target, potentially necessitating the reintroduction of liquidity into the system to alleviate the financial pressure on banks and intermediaries.
With a labor market that's more robust than the Federal Reserve would prefer, combined with a gradually decreasing Consumer Price Index (CPI), I believe retail investors may free up cash for speculation on stocks - especially given the possibility of further quantitative easing (or its equivalent under whatever the government want to call it these days) cannot be ruled out - thus money printer go brrr, again.
In this scenario, I'm speculating that large cash holders will be reluctant to rotate their holdings into low-yielding instruments or maintain their positions in money markets.
Instead, this capital may flow back into undervalued and low-priced stocks with strong balance sheets, as investors seek to preserve their wealth and achieve higher returns in a challenging economic environment.
From a technical analysis standpoint, this could drive the S&P 500 higher, reinforcing the contrarian outlook.
Featured Chart S&P500 1D (click to enlarge photo)
I maintain a bullish outlook on the Canadian economy in the medium to long term; however, in the immediate short term, I anticipate a week or two of consolidation at the lower levels before a reversion back to the range mean.
It's crucial to acknowledge that a breach of support on this diagonal range could have adverse consequences for the TSX, as the support hovers just above the 18,000 level.
Featured Chart TSX 1W (click to enlarge photo)
The VIX, or the CBOE Volatility Index, which measures market expectations of near-term volatility, has exhibited some interesting patterns when comparing its 2018-2020 range with the range forming between 2022-2024. These comparisons hint at a potentially concerning situation.
If the VIX continues to compress, forming lower highs and lower lows, the inflection point appears to be somewhere between Q2 and Q4 of 2024. Intriguingly, this timing coincides with the U.S. Presidential election, prompting speculation as to whether the market is anticipating a significant climax around that event.
Featured Chart VIX 1W (click to enlarge photo)
Treasuries
📉 US2YR & 📉 US10YR
💬 Matthew’s Commentary, Analysis & Prediction for the Week Ahead:
The 2-Year and 10-Year yields experienced significant corrections following last week's FOMC event, with the 2-Year yield falling to 3.775% and the 10-Year yield dropping to 3.38%.
This decline in yields can have various implications for bond prices, appetite for risk assets, and the yield curve inversion.
As bond prices and yields have an inverse relationship, a decrease in yields leads to a rise in bond prices. Investors who are holding these bonds would benefit from the capital appreciation, while new investors would face lower returns on their investments.
This is timely as if you remember in last weeks edition I covered the Fed + U.S Gov’s emerging funding program (bail-in) for U.S. banks to address potential solvency crises.
Under this program, banks can borrow against their Treasury bills at 'par' value, providing them with a liquidity backstop during turbulent times. This will serve as a temporary precautionary measure to ensure that banks can maintain their operations and continue lending in the event of a market downturn or a sudden tightening of credit conditions.
While the funding program's implementation does not necessarily signal an imminent crisis, it highlights the importance of preparing for potential risks in the current economic environment.
These falling yields can also have a significant impact on other asset classes that we previously discussed, such as the DXY, Canadian Dollar, and the S&P 500. As yields decrease, the attractiveness of bonds as an investment option may diminish, prompting investors to seek higher returns in riskier assets like equities or cryptocurrencies.
My downside targets for the 2-Year yield and the 10-Year yield in the coming weeks are 3.3% and 2.95%, respectively. If these targets are reached, it could lead to a further flattening or even inversion of the yield curve. An inverted yield curve occurs when short-term interest rates exceed long-term rates, and it is often seen as a harbinger of an economic downturn.
Featured Chart US2YR 1D (click to enlarge photo)
Featured Chart US10YR 1D (click to enlarge photo)
Cryptocurrencies
📈 Bitcoin & 📉 BTC.D + 📈 XRP + 📈 Total Crypto Market Cap + 📈 Total Altcoin Market Cap
💬 Matthew’s Commentary, Analysis & Prediction for the Week Ahead:
Bitcoin has undeniably experienced a remarkable surge this year, with an impressive 85% increase since its November lows.
As the dominant force in the cryptocurrency market, Bitcoin's performance significantly influences other cryptocurrencies, with profits from its local top often being dispersed among blue-chip cryptos and smaller-cap altcoins that boast strong fundamentals.
I expect Bitcoin to reach its peak in the low 30K range before undergoing a correction around the May FOMC meeting, potentially dipping below 21K.
This consolidation period will likely accumulate liquidity for its subsequent ascent towards the 50K mark.
It's crucial to recognize that Bitcoin's current bullish trend remains firmly in control, fueled by ongoing narratives and the potential for further quantitative easing. However, predicting the precise trajectory of Bitcoin's rise is challenging, as the market remains volatile and unpredictable.
As Bitcoin continues to climb, short positions are naturally increasing, accumulating significant liquidity that can be squeezed to push prices even higher.
While purchasing Bitcoin at its current high might not be advisable, many altcoins present attractive buying opportunities. If pullbacks occur, they could provide ideal entry points in the current market environment.
Keep an eye on Bitcoin dominance as it approaches target resistance.
If it begins to decline while the TOTAL2 crypto market cap demonstrates strength, this could signal a rotation into altcoins and herald the long-awaited alt season.
Featured Chart BTC 1D (click to enlarge photo)
Featured Chart BTC.D 1D (click to enlarge photo)
Featured Chart XRP 12HR (click to enlarge photo)
Featured Chart TOTAL 1D (click to enlarge photo)
Featured Chart TOTAL2 1D (click to enlarge photo)
Commodities
📉 Oil + 📉 Gold & 📉 Silver
💬 Matthew’s Commentary, Analysis & Prediction for the Week Ahead:
Crude oil has now reached my target of $65 per barrel, and in the coming weeks, I expect market forces to reevaluate the narratives surrounding supply and demand, which will ultimately determine the price trajectory.
Interestingly, the U.S. dollar's influence on international oil trade seems to be waning, which could have significant implications for the demand and supply dynamics of oil.
From a technical perspective, it would be ideal to see oil test the range lows of $55 per barrel.
However, it's difficult to envision a headline that would trigger such a move. As a result, my current expectation is for a period of consolidation at these lows.
I will closely monitor the chart's development to refine future technical predictions.
Featured Chart Oil 2D (click to enlarge photo)
Gold enthusiasts will appreciate this week's chart analysis as the precious metal is currently testing the significant resistance level of $2,000 per ounce.
While I expect a technical pullback into the $1,900s in the short term, I'm confident that gold will enter price discovery in 2023, with a target of $2,250 per ounce by year-end.
In July last year, I accurately predicted the accumulation region for gold and its eventual $2,000 price target.
Considering the current macroeconomic landscape, gold could serve as an insightful barometer for the future direction of the financial system.
To better understand this outlook, let's delve into some key factors. Persistent concerns around inflation, geopolitical tensions, and an uncertain global economic climate have made gold an attractive safe-haven asset.
In such an environment, investors may flock to gold as a store of value and a hedge against economic uncertainty.
Moreover, as central banks worldwide continue to explore and implement unconventional monetary policies, gold's appeal as an alternative investment option grows.
The weakening of the U.S. dollar, coupled with potential further quantitative easing, could bolster gold prices and contribute to the predicted rally.
Featured Chart Gold 1D (click to enlarge photo)
Featured Chart Silver 3D (click to enlarge photo)
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