US and European futures are struggling for direction, and the trading session so far is predicting a choppy session. After the disappointing US CPI number, which came ahead of Wall Street expectations and made the US stock market plunge from its recent highs, investors and traders are focused today on the next important economic set of data—the US retail sales number.
Once again, the major topic and the focal point among investors and institutions is how much the Fed will increase the interest rate. The recent CPI number has raised the speculations that the Fed will increase the interest rate by a full percentage point, and that means an interest rate hike of 100 basis points. As mentioned yesterday, we do not think that the Fed will increase the interest rate by 100 basis points, as by doing that, it will significantly increase the risk of tipping the US economy into a recession.
What is also going to be a major focus among investors and traders is the ongoing threat of the US rail strike, which could worsen the global energy crisis. This is because the US market is the biggest market in the world, and there is always a spillover effect in the rest of the world. The potential rail strike in the US could lead to catastrophic results for the energy sector, exacerbating the energy crisis in Asia and Europe, leading to higher fuel costs. Remember, higher fuel cost has been one of the major components of rising inflation, and the only reason we have seen some relief in inflation numbers is because of fuel prices moving lower.
In Europe, the utility sector remains in focus as it was the worst performing one yesterday. The lawmakers are of the mind frame that they want to impose windfall taxes on the sector to soften the blow on the government, and investors aren’t comfortable with the idea of dragging the sector lower. As long as the energy crisis continues, the sector is likely to underperform
In the currency market, the most intriguing pair and the one where we could be the biggest surprise is the USD/JPY. The dollar-yen pulled back from its recent highs of 145 on reports that the Bank of Japan is now actively monitoring the rates, and when it does that, it usually means intervention by the bank. Remember, smart traders have been anticipating such an action by the BOJ around these price levels, and it could be now any day that we may hear unexpected news or see a reaction by the BOJ. The pair is highly vulnerable now and expect higher volatility in the coming days.
Another measure of volatility for the yen can also be seen by looking at the hedging cost of the yen. The three-month dollar hedging cost has jumped to the highest level since 2008. If we compare the yen against the euro currency, the hedging cost has reached a level that has not been seen since 2009
The big day for cryptos is here, and all eyes will be on Ethereum when it experiences the biggest upgrade of its lifetime. There have been a lot of speculations all along, such as the transition will be as smooth as one’s iPhone upgrades to a new system and many thinking that Ethereum could topple Bitcoin’s market cap. The reality is that there is no such thing as called smooth transition when it comes to a technology that is still very much in its early stages so expect a bumpy ride. As for the price action, the likely scenario could be which is buy the rumour and sell the news. This means that we are likely to see the price of ETH retracing from its recent highs, and even if there is a pump in the price, it will not be to the extent that it could topple bitcoin’s market cap. Bitcoin is a different beast, and cannot be beaten.