US and European futures are trading somewhat soft today as traders are taking a breather after a stunning start to the year. For instance, the European stock indices touched their highest level in nearly eight months. All of this is mainly on the back of one major factor, and the Chinese economy is back to life. China is a $17 trillion economy, and it is sitting near its lowest point in nearly half a century due to the impact of covid and its covid zero policies. However, the fact that the country is in the process of dismantling its covid zero policies and has changed the travel rules since Sunday sent a strong signal that China is coming back, which means all the supply chain issues are going to be resolved and economic demand is going to get a massive lift.
Today, we also see traders largely focused on the Fed Chairman’s speech. Jerome Powell, the Fed Chairman, is slated to speak at 2:00 PM GMT, and his comments are going to move the markets. There are two things that traders would very much like to know. Firstly, what is the Fed’s take on the economic health of the US economy, and secondly, where is the monetary policy heading given that the Fed is still far off in reaching its inflation target? Some members of the Fed Committee do think that inflation is more than likely to kiss the three-handle by the end of this year, which would be a remarkable achievement for the Fed if it becomes a reality. But does that mean that the Fed will continue to increase the rates in the same aggressive manner they currently are increasing? If the answer is yes, then it certainly means that the Fed is more than likely to make another policy mistake because aggressive interest rate hikes mean a hard landing for the US economy and one can only dream about a soft landing.
US Stock Market
The Nasdaq Composite saw a rise of 0.6% during normal trading, with the support of a 6% increase in Tesla’s price. During this time, the Dow lost 304 points of its earlier gain and finished the day roughly 113 points worse, while the S&P declined 0.1%.
As Hong Kong and mainland China resumed quarantine-free travel over the weekend, Asian markets traded higher, indicating the end of the zero-Covid policy that had kept borders essentially closed for almost three years.
The South Korean market index (Kospi) finished the day up 2.63% at 2,350.19, leading advances in the region, while the country’s stock exchange (Kosdaq) was up 1.78% at 701.21.
The Hang Seng index of Hong Kong finished the first day of trading after the reopening with a rise of 1.77 percent during the last hour of trading. Along with tourism and consumer goods companies, technology equities were the primary drivers of increases. The Shanghai Composite Index increased by 0.58%, reaching 3,176.08, while the Shenzhen Component Index increased by 0.62%, reaching 11,450.15.
Oil prices have had a decent run in the past two days but looking at the price action, it becomes increasingly clear that bulls are struggling to control the price action. The reason for this is that some traders are concerned that the reopening of trade in China has pushed the covid numbers in the Chinese capital to their peak level. Beijing could take a u-turn towards easing its stance of scrapping zero covid policy. Nonetheless, there is no doubt that the market still hasn’t priced in how strong oil demand could be once China comes fully open. This keeps the opportunity doors open for those who believe in this thesis. This is because when Chinese oil demand returns to pre-covid levels, we are most likely to see oil prices shooting toward the sky as the oil cartel, OPEC will be unwilling to increase oil supply rapidly.
In recent days, the price action of Bitcoin and Ethereum has started to show some signs of encouragement. For instance, if you look at the YTD performance of Bitcoin and Ethereum, both are impressive by normal standards but not by crypto standards. However, in this day and age, investors only want to see more stability and normal standard performance as volatile crypto gains make them concerned.
Overall it is difficult to say that the worst is behind us when it comes to crypto and that all bad actors have been flushed and that regulation is where it should be. However, it is safe to say that we have fewer bad cryptos actors after the recent round of ostracising bad players and we are a few more steps closer to having clear guidance from the regulators. A large portion of the capitulation move has already opened and the tide could be changing soon. It is time to watch the price action and fundamentals more closely when it comes to the price action. BTC’s price move above the 20K could revive some confidence among traders.