Weekly market recap 21 November 2022 - FTMO®

Slide WEEKLY MARKET RECAP Your weekly global financial markets newsletter Market weekly Recap

21 November 2022

  • The cryptocurrency crash continues. In the middle of last week, due to the situation in the cryptocurrency markets, the lending arm of crypto investment bank Genesis Global Trading had to stop withdrawals and new loans, sparking another wave of fears of further negative developments. Prior to this sudden move, the company was reportedly seeking an emergency loan of $1 billion from investors because it was having liquidity issues. There are also reports of problems at another crypto exchange, Kraken, but so far only of a technological nature.
  • Meanwhile, the new head of FTX is finding out what a mess the management of the world’s second largest crypto exchange was. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said Ray, who has more than 40 years of legal and restructuring experience, including overseeing Enron’s high-profile bankruptcy in 2001.
  • “From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he added.
  • “The whole situation has a strong impact on other projects and investors. The companies around Sam Bankman-Fried were major holders of the SOL token, which is going down. They are trying to get liquidity on Aava and Curve Finance. Here again, they are sinking USDT, which has become disconnected from the underlying asset, the US dollar, in recent days. Others affected may be FTX investors such as BlackRock, Ontario Pension Fund, Sequoia, Paradigm, Tiger Global, SoftBank, Circle, Ribbit, Alan Howard, Multicoin, VanEck, Temasek and others. Sequoia Capital has already repriced its $213 million investment in FTX to zero,” said cryptocurrency, Blockchain and E-Commerce technology expert Igor Pauer.
  • “The situation is unpleasant, it has knocked down the bitcoin and altcoin exchange rates and many investors have lost money. On closer analysis, the signs and evidence of problems have been showing for a long time. At the same time, this situation, as well as the crash of the crypto fund 3AC, can be considered a kind of cleansing process. The industry will get rid of toxic projects and come out of this in better shape,” he added.

Indices

US stocks failed to build on the successful previous week and the major indices posted slight losses. The optimism triggered by the recent decline in inflation in the US has waned and earlier in the week investors were cooled down by some Fed officials who expect a continuation of the rapid rise in interest rates. On Thursday, news of a missile impact in Poland caused jitters.

European stocks ended the week with better results, but even here, concerns about continued hawkish moves by central banks on both sides of the Atlantic still resonate. The pan-European STOXX Europe 600 index rose a quarter of a percent, Britain’s FTSE 100 firmed 0.92%, Germany’s DAX gained 1.46% nd France’s CAC 40 gained 0.76%.

US30
-0.01%
US100
-1.18%
US500
-0.80%
GER40
+1.46%

Commodities

The commodities market has been hit again in the past week by fears of a drop in demand in China, still struggling with a rise in COVID-19 infections, which could have a negative impact on travel. The oil price is also negatively affected by the fact that oil stocks in Europe have stabilised. However, this may change again following the introduction of stricter sanctions on Russian oil imports.

Gold, in turn, is suffering from hawkish statements by some FOMC members, among whom James Bullard stands out, who said that to fight inflation, interest rates will need to be high for a much longer period of time than originally anticipated.

Gold
-1.16%
Silver
-3.46%
BRENT
-8.49%
NATGAS
+8.36%

Forex

After several weeks of declines, the US dollar managed to strengthen again last week. It was helped by the aforementioned comments from some Fed officials about the need to keep interest rates high for the long term. The only currency that lost ground against the dollar was the British pound, which was helped by good retail sales data and high inflation, which is forcing central bankers to keep raising interest rates.

EUR/USD
-0.30%
USD/JPY
+1.14%
GBP/USD
+0.44%
USD/CAD
+0.98%

Macro

US retail sales beat expectations, both on an overall basis last month (+1.3% vs. +1.0% expectations) and in core terms excluding the volatile auto segment (+1.3% vs. +0.4% expectations).

The labor market still remains resilient, and jobless claims remained contained with 222,000 workers filing for unemployment benefits.

Inflation in Euro Area was revised slightly down to 10.6% year-on-year in October 2022 from a preliminary estimate of 10.7%, but it is still a record high, far above the ECB’s 2% target, and puts pressure on central bankers to continue raising rates despite the economic slowdown.

Similarly, inflation in the UK hit a 41-year high of 11.1% YoY, up substantially from September’s 10.1%.

UK finance minister Jeremy Hunt unveiled tax increases, spending cuts, and new fiscal rules. To plug a fiscal hole of GBP 55 billion, the government will raise taxes by GBP 25 billion and cut spending by GBP 30 billion by 2027–2028. Much of a painful squeeze on public spending is slated to occur after the next general election in 2024.

What to watch out for this week

  • Next week will be influenced by the Thanksgivig day holiday in the USA, so trading volumes will be a bit subdued on the markets. The main driver will be Wednesday’s Federal Reserve meeting minutes. While this meeting was held prior to the release of the October CPI report, the market could see a shake-up when the hawkish tone of the members is confirmed in black and white.
  • PMI data from the Eurozone, the U.K. and the U.S. on Wednesday may add to the gloom. In most European countries, PMIs are below the 50 marker that separates expansion from contraction.
  • Britain is already facing a lengthy recession. Eurozone economic growth has held up better than expected and labour markets remain relatively robust. But recession risks are still looming amid energy shortages and elevated inflation.
  • In the US, durable goods orders data is still to come out, showing how firms are responding to a slight fall in inflation, and the rise in rates should be reflected in the housing market and new home sales.
  • At the end of the week, we will also see the business climate in Germany according to the Ifo Institute and consumer confidence according to GfK, along with the final German GDP data.
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