SVET Reports

SVET Markets Weekly Update (November 14, 2022)

This week brought to us a long-awaited correction, sparkled by the FTX debacle.

BTC, which was hold above 18th line for almost 5 months by corporate traders and whales, suddenly give in and went below 16th. All other coins promptly mirrored BTC move, but more violently, with some of them crashing more than 50 percent.

Here’s how events developed:

Tuesday, November 8, crypto markets tumbled on Binance purchasing FTX news, which send prices below 17th for a few minutes. BTC recovered fast (to ~18500) but most small traders felt themselves out of guidance and traded emotionally.

In the next 24 hrs the next package of disturbing news hit the markets. It turned out that FTX is insolvent and CJ is urgently getting out of the FTX deal. After that BTC penetrated 18K resistance as a bullet — pancake. Prices of other coins avalanched far below their monthly levels of resistance triggering the strong over-sold signals on all technical charts.

Moments like that, when some unexpected turn of events start a crypto markets turmoil while economic fundamentals stay the same usually present good buying opportunity for speculators. That what had happened this time leading to an extraordinary (for the past 6 months) volatility on all major coins / USD pairs.

TimeLine: Mon — UP, Tue — CRASH, Wed — CRASH and BUY, Thu — UP and SELL, Fri — DOWN, Sat — DOWN and WAIT. Now prices of leading coins stabilize on their mid-October levels (preceding the post-FOMC-meeting pump).

The upcoming week promises to be the busy one for traders. We will watch for the following macroeconomic updates:

Producer Price Index (PPI) for October issued on Tuesday, November 15 by Bureau of Labor Statistics (BLS);
October Retail Sales estimates from Census Bureau coming out on Wednesday, November 16;
At Thursday, November 17 — New Housing Starts and Building Permits (both for October issued by Census Bureau);
Housing market statistics will be complemented at Friday, November 18 by National Association of Retailers coming out with their Existing Home Sales estimates for the month of October.
The Producer Price Index continues to top up in September when it increased for 0.4 percent (month-over-month) after sliding back two previous months. In April 2020 PPI decoupled from its more or less gradual rise (during the preceding two decades PPI went up from its lowest 100 to ~115 in 2020). Then, in 12 months, it exploded from ~115 to the recent height of ~140.

Although CPI is more popular with FOMC elderly hypocrites, while setting their anti-prosperity policies, watching PPI (which is basically a measure of wholesale inflation) might provide important early clues on the direction retail prices go in a nearest future.

For September cost of services rose 0.4 percent, including traveler accommodations jumping 6.4 percent. Other notable increases in prices for services include: food retailing (2.6 percent), portfolio management (2.1), machinery and vehicle wholesaling (1.5).

On a cost of goods’ side overall pricing went up 0.4 percent, including: food (1.2 percent, specially for fresh and dry vegetables — 15.7 percent and chicken eggs — 16.7 percent); also for diesel fuel (9.1) and residential gas (2.6). On the other side, gasoline prices went down 2 percent.

PPI increased to 8.5 percent (on a yearly basis) in September. Forecasters expect October increase to be 0.3 percent (0.4 percent reported by BLS in previous month).

After the Retail Sale index skyrocketed spectacularly in 2020 rising from ~ -15 percentage in April to ~ +20 May its month-to-month fluctuations were gradually cut down reduced to +/- 2–3 percentage at its picks (with a notable exception of Feb-May 2022 period when index jumped for almost 15 percent on a war uncertainties).

For a reference, the previous historical periods, when such extraordinary disturbances in retail sales occurred, were in September 2001 (911), when index went up and down for more than 8 percent (on a monthly basis) and in 2008 during the mortgage debts debacle, when index change was in range 6–7 percentage.

In September 2022 retail sales registered no growth (index = 0) while market analytics expectations put it to 0.2 percent. Obviously, Powell made it difficult for consumers to take on credits by sharply rising borrowing costs. Not to mention that rising energy prices, which FOMC can’t control even in theory, is progressively factoring into peoples decision to tighten their purses.

Among stores, which were significantly affected by those factors, are: gasoline stations (-1.4 percent), electronics stores (-0.8 percent) and miscellaneous retailers (-2.5 percent). On the other hand, sales at grocery stores rose 0.4 percent. Obviously, inflation or no inflation, food expenses can not be significantly cut, for the majority of peoples, anyway.

After market prognosticators saw some slowdown in the inflation increase during previous reporting periods, they now expect retail sales to jump for almost 1 percent in October again. We have to wait until Wednesday morning to know how much they miss their target this time.

Housing market will be in the center of analytics attention starting from Thursday when Census Bureau publishes its report on new housing starts.

Historically, during the past thirty years, we have seen two extended periods during which more and more new homes were built month after month, year after year. First period began in early 1990th when home starts were on a level of 800K per month. During the next decade that number rose to more than 2.2 million new homes started in 2006 each month. Second period began in 2009 after a dramatic market contraction from 2.2M to less than 500K in a year. From there and to 2022 this figure rose almost four fold — to more than 1.8M reach in May of this year.

In September 2022 new starts were at 1.439 million — down from 1.566 million in October. Forecasters missed on their rosy estimates of 1.475 million, which led to a spike of short-sighted optimism among traders some of which still hoped that cooling of housing market, which was hit by soaring prices of materials and rising mortgage rates, might have changed Powell’s rigid mind. Obviously it didn’t happen.

From two major types of housing — single-family and multiple units — the former (less costly ones) were hit the least by rising prices and their starts dropped only 4.7 percent compare to decreased of 13.1 for a later.

Different regions were affected differently by price rise. Starts get down in the South (-13.7), the Northeast (-12.5) and the Midwest (-2.7). In contrast in the West, which experiences inflow of residents this number come up by 4.5 percent to 372 thousand.

Another housing market indicators — building permits, issued by the same gov agency at the same instance with new starts, will have a chance to affect market dynamics at Friday.

The historical graph of building permits is pretty much identical to the new home starts one, with its highest picks roughly coinciding with periods of higher prices and the end of periods of economic prosperity in USA: in early 70th, in mid 80th, and, as I described above, in 2008–09.

In September building permits went up 1.4 percent (to 1.564 million). Most recent forecasts (for October) put it on 1,465, which exemplifies analysts rising hope that economic slowdown is getting reflected in govs statistics after all.

National Association of Realtors reports existing home sales figure making another step down the ladder (-1.5 percent) reaching 4.71 million in September, which returns this indicator to its May 2020 levels. As with new starts, there is regional differentiation: Northeast, Midwest and South show -1.6, -1.7 and -1.9 percent of decline, while the West stayed unchanged.

For comparison there were ~6.8 million home sold in October 2020 and ~6.5M in Jan 2022. Then FOMC caused the mortgage rate to skyrocket and crashed the demand side while home suppliers just continue to pump prices regardless. That might continue for a very long time as managers of the highly concentrated real estate industry have no urge at all to settle for lower prices. Instead, inflation in that industry will continue to rage as corporations will try to equalize lower sale volumes by higher prices. Eventually, of course, it stops but when is anyone guess at this stage.

Weekends might cool down most hot-headed traders but with so many macro-news coming out the next week and FTX saga just at its first page it is not likely that players nervousness will subside and we will see price consensus forming soon.