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Futures Dip As Markets Brace For Hawkish Fed Surprise

Futures Dip As Markets Brace For Hawkish Fed Surprise

US stock index futures slipped on Wednesday – after a frenzied late rally into Tuesday’s…



Futures Dip As Markets Brace For Hawkish Fed Surprise

US stock index futures slipped on Wednesday - after a frenzied late rally into Tuesday’s month-end thanks to a monstrous, $6 billion in Market on Close buy orders - but were off session lows as investors awaited the Fed’s policy decision after a stellar start to the year for stocks amid speculation the central bank will signal a slowdown in the pace of rate hikes.

Futures on the S&P 500 were 0.2% lower, trading around 4083, while Nasdaq 100 futs popped into the green as of 745am ET, with both underlying indexes surging more than 1% on Tuesday. The Nasdaq soared more than 10% in January in a furious short-covering rebound unseen in more than two decades. An index of global stocks excluding the US is making history with a gain of 8.6% last month — the best start to a year on record. Elsewhere, European and Asian stocks rose, the 10-year Treasury yield fell about three basis points and the dollar index dipped before the Fed statement, where it’s forecast to unveil a 25 basis point rate increase.

Among notable movers in premarket trading, Electronic Arts Inc. after the video game maker cut its full-year forecast and announced a six-week delay in the release of its next Star Wars game. Chipmaker AMD rose after the chipmaker gave a sales forecast that was better than feared, helped by gains in the server market. Perennial loser Snap plunged as the social media company gave a weaker-than-expected forecast, saying changes to its advertising products may be “disruptive” to its business. Shares of other companies that get a bulk of their revenue from online advertising, including Meta and Pinterest also dropped. Bank stocks were also lower in premarket trading Wednesday as traders await the Federal Reserve’s interest rate decision. JPMorgan is planning to launch a digital bank in Germany as its second international consumer outpost. Meanwhile, some users of bankrupt crypto lender Celsius Network’s Custody program will be able to withdraw 94% of their eligible assets, according to a court filing. Here are some other notable premarket movers.

  • Peloton jumped 8% after it reported improved cash flow and a narrower net loss in the latest quarter, leading Chief Executive Officer Barry McCarthy to say that questions about the viability of the business have been “put to bed.”
  • Chinese stocks listed in the US rise in premarket trading, poised to end three days of declines, with Baidu and electric-vehicle stocks leading the way. Li Auto (LI US) +6%, XPeng (XPEV US) +4.1%, Baidu (BIDU US) +7.9%, Alibaba (BABA US) +1.5%, Pinduoduo (PDD US) +2.6%, Bilibili (BILI US) +3.1%
  • Western Digital shares slide 4.5% after its revenue forecast for the third quarter fell short of estimates. Analysts blamed weakness in the NAND flash market and PC demand, though some were hopeful that the data-storage device maker could weather the storm.
  • Electronic Arts shares fall 11% after the video-game company cut its full-year forecast and announced a six-week delay in the release of its next Star Wars game.
  • Match Group slides 8.7% after the dating services firm gave guidance for 1Q23 showing little fundamental business improvement is expected near-term.
  • Keep an eye on Rocket Pharmaceuticals (RCKT US) stock as Morgan Stanley initiates coverage with an overweight recommendation, saying the biotech is a leader in gene therapy with a robust cardiovascular pipeline and a hematology pipeline providing near-term revenue.

Today's key event is the FOMC decision due at 2pm (preview here). Economists widely expect the central bank to raise rates by 25 basis points at the conclusion of its two-day meeting Wednesday. Chair Jerome Powell is likely to keep further hikes on the table while leaning against bets they will cut rates later this year.

"Powell will certainly sound satisfied about the falling inflation and slowing wages, but he will likely point out that inflation remains high, risks to inflation remain to the upside and that the job is not done yet,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “He will surely push back the expectation of any rate cut this year” and a hawkish statement could further weigh on stocks, she said.

Wage cost data that undershot forecasts, a cooling housing market dwindling consumer confidence suggest the Fed’s rate hikes over the past year have begun to curtail inflation, but still-loose financial conditions are complicating the central bank’s task.

"The question is will the Fed emphasize a pause or push back against the easing being priced in for this year and the next,” said Steve Donzé, deputy head of investment at Pictet Asset Management in Tokyo. “The market is worried about this, because a lot of this rally was helped by softer yields and the dollar and if the Fed starts to fight the easing that’s priced in it will have consequences for the yield curve and equities.”

Powell will also try to push back against easing financial conditions which are now as loose as they were in Jun 2022 when Fed Funds were 1.75%.

Focus is also on company earnings, with analysts expecting the first quarterly drop in US profits since 2020. Investors can no longer count on some crucial tailwinds that helped spur a remarkable two-decade stretch of earnings growth, according to Bank of America.

In Europe, the Stoxx Europe 600 index pared most of its early gain after a report showed inflation in the euro area slowed more than economists’ expectations in January. The the core measure remained sticky, however, suggesting heated debate to come at the European Central Bank over how much more interest rates must rise. The central bank is expected to lift its policy rate by 50 basis points on Thursday. Here are some of the biggest European movers:

  • GSK shares turned lower after gaining as much as 1.5% as its quarterly sales and profit both topped expectations, driven by a strong performance in the vaccines division and HIV drug portfolio
  • ABB shares rise as much as 1.3% after the Swiss automation company’s EV-charging business raised additional funds from minority investors
  • Husqvarna rises as much as 7% as the Swedish lawn care and outdoor equipment firm’s organic sales growth, particularly for its robotic products, led to an outperformance in 4Q
  • BBVA shares advance as much as 2.5% after it reported earnings which Jefferies described as solid. Analysts also noted the upbeat outlook for 2023
  • Virgin Money UK shares gain as much as 1.2% after the bank forecast net interest margin for the full year of 1.85% to 1.9%, in an update seen as “neutral” by Morgan Stanley
  • Darktrace shares rise as much as 6%, recovering from a two-day 17% slump, after the cybersecurity firm announced plans to buy back shares
  • Vodafone shares decline as much as 3.3% in early trading, after the telecom operator reported a further slowdown in service revenue growth in core markets including Germany and Spain
  • SEB falls as much as 4.4% after Trygg-Stiftelsen sold 75m shares in the bank at a price of SEK120 apiece, representing a 4.9% discount versus Tuesday’s close
  • Novartis dips as much as 1.9% after the Swiss drugmaker’s quarterly sales were a touch behind expectations due to a miss for psoriasis treatment Cosentyx

“Headline inflation continues to fall across the eurozone but core inflation, which strips out food and energy, flatlined,” said John Leiper, Chief Investment Officer at Titan Asset Management. “Price pressure, particularly in the services sector, will remain elevated for some time. Given the economy is holding up far better than predicted we expect the ECB to hike interest rates again on Thursday by a widely anticipated 50 basis points.”

Earlier in the session, Asian stocks rose ahead of the Federal Reserve’s interest-rate decision, as signs of cooling US inflation boosted risk appetite in the region. The MSCI Asia Pacific Index rose as much as 0.8%, driven by technology and consumer discretionary shares. Benchmarks in Hong Kong as well as the tech-heavy markets of South Korea and Taiwan all gained about 1%, while India declined. All eyes were on the Fed meeting later Wednesday, with markets expecting a 25-basis-point rate hike. Investors betting on a downshift in tightening were cheered by data showing slower growth in US employment costs, adding to signs of moderating inflation. 

“Wall Street is slowly growing confident that this week’s Fed rate hike might end up being the last one in this tightening cycle,” said Edward Moya, senior market analyst at Oanda. “The economy is weakening and that is fueling Fed rate cut bets at the end of the year.” India’s benchmarks erased early gains driven by a budget boost, as a selloff among Adani group’s stocks accelerated in afternoon trading.

In India, Adani Group stocks resumed their selloff after the share sale by the Indian conglomerate’s flagship firm failed to turn sentiment from Hindenburg Research’s fraud allegations. In one bright spot for the group, nearly all dollar bonds issued by Adani companies extended gains into a second day.

Japanese stocks closed mixed ahead of the Federal Reserve meeting later Wednesday and as investors weighed domestic company results. The Topix fell 0.2% to close at 1,972.23, while the Nikkei advanced 0.1% to 27,346.88. Lasertec contributed the most to the Topix decline, falling 14% after the chip-equipment maker reported quarterly profit that missed analyst estimates and trimmed its order outlook. Out of 2,164 stocks in the index, 935 rose and 1,134 fell, while 95 were unchanged. “There is a consensus that the FOMC may end interest-rate hikes in March,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “After that, we would want to see the impact on the economy”.

Australian stocks rose with the S&P/ASX 200 index 0.3% higher to close at 7,501.70, boosted by gains in mining stocks and banks, as investors await the Federal Reserve’s policy meeting.  Flight Centre was the top performer, surging 8% after the travel agency successfully completed a A$180 million placement to buy UK-based luxury travel brand Scott Dunn and provided a trading update.  In New Zealand, the S&P/NZX 50 index rose 1% to 12,090.93.

In FX, the Bloomberg Dollar Spot Index eased 0.1% ahead of the Fed policy decision later on Wednesday where it’s expected to raise rates by 25 basis points. The greenback was steady to weaker against its most Group-of-10 peers, with Scandinavian currencies topping the G-10 leaderboard. The Treasury curve bull flattened, with the 10-year yield dropping by about 4bps.

  • The euro inched up toward $1.09 though options suggest a move above $1.10 after the Fed and the ECB is unlikely. Euro-zone bonds pared an advance after core-CPI for the region came in higher than estimated in January, while the headline number eased more than forecast.
  • The pound underperformed most of its Group-of-10 peers, trading little changed against a the US dollar. Domestic focus remains on Thursday’s BOE decision.
  • New Zealand’s dollar was steady while short-maturity bonds gained and traders trimmed bets on a rate hike at the RBNZ’s February meeting after employment data missed estimates.

Treasury yields are slightly lower across the curve, with gilts outperforming over the early London session across the belly of the curve. US yields are richer by up to 2.5bp across the long end of the curve, which is outperforming slightly, flattening 2s10s, 5s30s spreads by 1.8bp and 0.5bp; 10-year yields around 3.485%, outperforming bunds by 3bp in the sector — the front end and belly of the UK curve is outperforming over the early London session. Fed-dated swaps market is pricing in around 27bp of rate hike premium for Wednesday’s decision and 47bp over the Feb. and March meetings; policy peak is priced at around 4.92% by the June meeting. The US session focus is on manufacturing data in the morning, before attention shifts to the Federal Reserve’s interest-rate decision at 2 p.m. in Washington and Chair Jerome Powell’s press conference 30 minutes later.    

In commodities, crude futures are little changed, with WTI trading near $79.00. Spot gold falls roughly 0.1% to trade near $1,926

Looking to the day ahead now, and the main highlight will be the Fed’s latest policy decision as well as Chair Powell’s press conference. Otherwise, data releases include the flash CPI release for the Euro Area in January, as well as the unemployment rate for December. Alongside that, there’s the global manufacturing PMIs for January and in the US we’ve got the ISM manufacturing print for January, the ADP’s report of private payrolls, and the JOLTS job openings for December. Finally, earnings releases today include Meta.

Market snapshot

  • S&P 500 futures down 0.2% to 4,084
  • MXAP up 0.7% to 169.15
  • MXAPJ up 1.0% to 554.79
  • Nikkei little changed at 27,346.88
  • Topix down 0.2% to 1,972.23
  • Hang Seng Index up 1.1% to 22,072.18
  • Shanghai Composite up 0.9% to 3,284.92
  • Sensex little changed at 59,576.27
  • Australia S&P/ASX 200 up 0.3% to 7,501.66
  • Kospi up 1.0% to 2,449.80
  • STOXX Europe 600 up 0.2% to 454.03
  • Gold spot down 0.2% to $1,923.98
  • U.S. Dollar Index down 0.12% to 101.97
  • German 10Y yield little changed at 2.26%
  • Euro up 0.2% to $1.0880
  • Brent Futures little changed at $85.38/bbl

Top overnight News from Bloomberg

The EU risks missing a March target to agree on a reform of its debt-limit rules in the face of resistance from countries including Germany, a prospect that may force member states into abrupt and potentially painful budgetary adjustments

For bond investors looking to bet big on a rally this year, signs of distress in the world’s highly-leveraged housing markets are only adding to their conviction. Places like the UK, New Zealand and Sweden — where house prices are slumping and mortgage payments are rocketing — are high on their watchlist

Shaky property markets across much of the world pose another risk to the global economy as higher interest rates erode household finances and threaten to exacerbate falling prices

Swathes of office staff have been forced to work from home Wednesday as widespread industrial action closes schools and cripples Britain’s rail network. As many as 475,000 union members are on strike

Chinese President Xi Jinping called for enhanced efforts to boost consumption in order to realize a virtuous economic cycle, as the world’s second largest economy gradually recovers from Covid Zero

A surge in Chinese spending last month has spurred more optimism about the country’s economic rebound, though weakness among manufacturers and sales of cars and homes still suggest the recovery isn’t yet on sure footing

Asia’s manufacturers are improving at the start of the year as the region becomes more optimistic about the boost from China’s reopening, while activity in the euro area shows the downturn is softening as cost pressures ease



A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded higher after the positive lead from Wall St where stocks advanced into month-end and which was facilitated by the softer Employment Cost growth in the US, although gains were capped by the approaching FOMC rate decision and after disappointing Chinese Caixin Manufacturing PMI data. ASX 200 was led higher by strength in the mining and materials sectors after a rebound in commodity prices and with an upgrade in the Final Australian Manufacturing PMI also conducive for risk appetite. Nikkei 225 briefly climbed above 27,500 but closed off its highs amid a deluge of earnings releases and after Japan’s manufacturing activity was confirmed to have declined for a 3rd consecutive month. Hang Seng and Shanghai Comp. were positive albeit with momentum restricted after Chinese Caixin Manufacturing PMI missed forecasts and printed a 6th consecutive month in contraction territory which was in contrast to the recent rebound seen in China’s official PMIs.

Top Asian News

  • US Defence Secretary Austin's visit to Manila is expected to bring a deal on expanded US access to bases in the Philippines, according to a senior Philippines official cited by Reuters.
  • China's President Xi says the need to coordinate expansion of domestic demand with deepening supply-side structural reforms, via State Media.
  • China securities regulator CSRC has released draft rules for IPO registration system reform for 1st February.
  • Tiny Radioactive Device Found in Australia After Desert Hunt
  • Modi Aims to Please All With $550 Billion India Budget
  • Gold Steadies as Traders Await Fed Meeting for Rate Outlook
  • China Lifts Southeast Asia Factories as Europe Downturn Softens
  • Insurers Top Losers as India Budget Seeks to Tighten Tax Rules
  • Adani Rout Passes $90 Billion as Stock Sale Fails to Stem Doubt

European bourses are little changed overall but with a modest positive bias, Euro Stoxx 50 +0.2%, ahead of data points and the FOMC. Sectors are predominantly in the green, but with the overall breadth narrow and no overarching theme in play despite numerous large cap earnings in the European morning; click here and here for details. Stateside, futures are a touch softer after yesterday's strength, ES -0.4%, with after-market updates weighing ahead of data and the Fed's policy announcement/press conference. Advanced Micro Devices, Inc. (AMD) - Q4 sales and profits topped expectations, but warns of revenue decline in Q1. +3.3% in pre-market trade  Tesla (TSLA) intends to increase the Shanghai plant's average weekly output to nearly 20k vehicles for Feb and March, according to an internal memo cited by Reuters.

Top European News

  • UK and EU reached a customs agreement which could pave the way for an end of post-Brexit wrangling over Northern Ireland, according to The Times.
  • Officials in Brussels have reportedly dismissed claims of a compromise deal on the ECJs role in the N. Ireland Protocol, via BBC's Parker citing sources; Parker adds, "A precise timeline isn’t clear but one official says negotiators are in the “tunnel”."."Regardless any compromise of that kind would also represent a significant UK concession, as well as an EU one." (re. the ECJ).
  • RTE's Connelly, on reports of an EU/UK deal on the NI protocol, says there is "Nothing new. Talks ongoing. Progress (is) being made but no sign of anything imminent.", citing a source.


  • The DXY is subdued and holding modestly below the 102.00 mark with slightly softer US yields vs global peers and the pre-FOMC risk tone exerting modest pressure on the USD.
  • EUR and AUD are the current outperformers despite a fleeting dip in EUR/USD following EZ Flash CPI while AUD is benefiting from soft New Zealand labour data and a subsequent paring in RBNZ rate expectations; EUR/USD just shy of 1.09 while AUD/USD resides near 0.708.
  • CAD remains near 1.33 pre-data while Cable has extended above the 1.23 mark irrespective of a pushback on reporting of an EU/UK compromise.
  • SEK and NOK have benefitted somewhat from their respective PMIs, though EUR upside caps gains, while the INR has slipped post-budget.
  • PBoC set USD/CNY mid-point at 6.7492 vs exp. 6.7499 (prev. 6.7604)

Fixed Income

  • EGBs are firmer but well off initial best levels, with Bunds below 137.00 after more than paring a knee-jerk spike on the EZ Flash CPI release, where once again the headline cooled but core remains firmer.
  • Gilts are faring better than their German peer post-supply, with the 2033 Green Gilt better received than the 2033 Bund, which required a hefty retention.
  • USTs are marginally outperforming and towards the top-end of 114.17+ to 114.30 parameters with yields lower as such and action most pronounced at the long-end of the curve.


  • Crude benchmarks have seen some modest two-way action throughout the morning, though the benchmarks are in relatively narrow ranges and near the unchanged mark overall.
  • Action which comes ahead of the OPEC+ JMMC event, which is not a decision-making meeting, and other risk events throughout the session.
  • US Energy Inventory Data (bbls): Crude +6.3mln (exp. +0.4mln), Cushing +2.7mln, Gasoline +2.7mln (exp. +1.4mln), Distillate +1.5mln (exp. -1.3mln).
  • OPEC+ JMMC has been pushed back one hour to 13:00GMT/08:00EST, according to Energy Intel.
  • Spot gold is little changed around the USD 1925/oz mark, given the broader tentative pre-FOMC price action. Base metals are softer following the miss in China's Caixin PMI release.


  • US is readying a USD 2.2bln weapons package for Ukraine which includes longer-range rockets for the first time, according to two officials cited by Reuters.
  • Russian Kremlin says that potential US supplies of long-range missiles to Ukraine would escalate tensions but would not stop Russia from achieving its goals; as bad as the present situation is, Russia believes the START treaty is very important; no current plans to hold talks between Russian President Putin and US President Biden, according to Sky News Arabia.
  • Belarusian servicemen have begun full independent operation of the Iskander missile system, according to the defence ministry.

US Event Calendar

  • 07:00: Jan. MBA Mortgage Applications -9.0%, prior 7.0%
  • 08:15: Jan. ADP Employment Change, est. 180,000, prior 235,000
  • 09:45: Jan. S&P Global US Manufacturing PMI, est. 46.8, prior 46.8
  • 10:00: Dec. Construction Spending MoM, est. 0%, prior 0.2%
  • 10:00: Dec. JOLTs Job Openings, est. 10.3m, prior 10.5m
  • 10:00: Jan. ISM Manufacturing, est. 48.0, prior 48.4
    • New Orders, prior 45.2, revised 45.1
    • Employment, prior 51.4, revised 50.8
    • Prices Paid, est. 40.4, prior 39.4

Central Banks

  • 14:00: Feb. FOMC Rate Decision (Lower Bound est. 4.50%, prior 4.25%; Upper Bound est. 4.75%, prior 4.50%)
  • 14:00: Feb. Interest on Reserve Balances R, est. 4.65%, prior 4.40%

DB's Jim Reid concludes the overnight wrap

After a very positive January, the start of February today marks a pivotal three days for markets that have the potential to decisively set the tone for the weeks ahead. That begins this morning with the flash CPI release from the Euro Area for January, before we have the Fed’s latest policy decision and Chair Powell’s press conference tonight. Then tomorrow we’ve got more policy decisions from the ECB and the BoE, an array of major earnings including Apple, Amazon and Alphabet, followed up by the US jobs report for January on Friday.

The last time we had a big round of central bank meetings like this in December, the rate hikes themselves were much as expected, but the hawkish rhetoric alongside them led to a big selloff. Nevertheless, the mood going into this round is much more optimistic, with the S&P 500 (+1.46%) closing at a 2-month high after the US Employment Cost Index numbers showed labour costs grew by less-than-expected, whilst the French CPI release also came in much as expected (unlike the Spanish print the previous day). So all eyes are now on the Fed to see whether they maintain their hawkish tone of recent meetings, or whether there might be any signals of a potential pause at future meetings.

When it comes to the Fed’s decision today, a 25bps rate hike is now widely expected by both markets and economists, and anything other than that would be a massive shock. It would also mark the first “normal” sized hike since March 2022 when this hiking cycle began, before they embarked on a series of supersized hikes to swiftly get the policy rate into restrictive territory. Given that the 25bps move is anticipated, the main focus today will instead be on any changes to forward guidance, both in the statement and from Fed Chair Powell’s press conference.

In their preview (link here), our US economists write that the statement is likely to keep the reference to “ongoing” rate hikes. Their view is that although the FOMC might be inclined to adjust this language as it moves closer to a pause, doing so now has little upside and risks widening the existing gap between market expectations and a more hawkish Fed. In terms of market expectations, futures are currently pricing in one more 25bps hike after today’s move, but only a one-in-three of another move after that. Indeed, terminal rate pricing points to just +58.3bps of further hikes, so closer to 50bps than 75bps. Futures are also indicating that the Fed will start cutting by year-end, which is contrary to the last FOMC minutes in December, where it said that “no participants” thought it would be appropriate to start cutting rates in 2023.

Ahead of the decision, there was some good news from their perspective in the latest ECI numbers for Q4. That’s closely followed by the Fed and showed an increase in employment costs of +1.0% (vs. +1.1% expected), which is the slowest quarterly increase in a year and added to the signs that wage growth is moderating. Nevertheless, if you wanted a more negative perspective, it’s still running above levels consistent with their target, and is above what we saw throughout the entirety of the 2010s. So as with the inflation figures, the Fed still have a way to travel before they can be comfortable about reaching their target, even if we’ve come off the highs from early 2022.

This optimism on the inflation side got added support from the French CPI numbers yesterday, with the EU-harmonised print at +7.0% as expected. That was a bit higher than the +6.7% in December, but the good news from an investor perspective was that it didn’t exceed expectations, unlike the Spanish print on Monday. All eyes will now be on the release for the Euro Area as a whole at 10:00 London time, and particularly on core inflation which hit a record 5.2% in December.

With all that to look forward to, markets staged a decent rally yesterday and the S&P 500 was up +1.46% to recover from its slump on Monday. The moves were part of a broad-based advance, with all 24 industry groups gaining on the day, led by autos (+4.32%), transports (+3.19%), retail (+2.24%), and materials (+2.22%). The worst performing industries were more defensive sectors, but even they advanced on the day as well. Meanwhile, the small-cap stocks in the Russell 2000 (+2.45%) were a particular outperformer as they closed at a 5-month high. The performance in Europe was rather weaker, with the STOXX 600 down -0.26%, but they hadn’t experienced the late selloff after the previous day’s close either.

Sovereign bonds also rallied ahead of the various meetings, with yields on 10yr Treasuries seeing a decline of -3.0bps decline to 3.507%, with yields remaining fairly stable overnight. That was echoed in Europe as well, where there were slightly larger moves in yields for 10yr bunds (-3.2bps), OATs (-3.4bps) and BTPs (-4.4bps). Those moves followed a small decline in terminal rate pricing for the Fed down -1.3bps on the day, while expectations for the ECB were basically unchanged (-0.6bps).

Overnight in Asia, that positive mood has continued with the major indices recovering after the previous day’s losses. Currently, the KOSPI (+0.72%) is leading gains with the Shanghai Comp (+0.29%), Hang Seng (+0.27%), CSI 300 (+0.25%) and the Nikkei (+0.09%), posting smaller advances. That’s also in spite of overnight data showing that Chinese manufacturing activity shrank more than expected in January, with the Caixin manufacturing PMI at 49.2 (vs. 49.8 expected), even if that was up from the 49.0 reading in December. Outside of Asia, the picture is a bit less positive as well, with futures on the S&P 500 (-0.28%) and the NASDAQ 100 (-0.39%) in negative territory ahead of the Fed’s decision today.

Looking at yesterday’s other data, the Euro Area economy unexpectedly grew by +0.1% in Q4 (vs. -0.1% expected), so avoiding a recession for the time being. That said, plenty of countries still saw a quarterly contraction, including Germany (-0.2%), Italy (-0.1%), Sweden (-0.6%) and Austria (-0.7%). Otherwise, UK mortgage approvals fell more than expected to 35.6k in December (vs. 45.0k expected), which is their lowest level since May 2020 when the economy was affected by the Covid-19 pandemic.

To the day ahead now, and the main highlight will be the Fed’s latest policy decision as well as Chair Powell’s press conference. Otherwise, data releases include the flash CPI release for the Euro Area in January, as well as the unemployment rate for December. Alongside that, there’s the global manufacturing PMIs for January and in the US we’ve got the ISM manufacturing print for January, the ADP’s report of private payrolls, and the JOLTS job openings for December. Finally, earnings releases today include Meta.

Tyler Durden Wed, 02/01/2023 - 08:05

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Why are existing home prices up year over year?

Existing home prices are up 3.9% year over year, with demand near 21st-century lows. How is this possible?



Existing home prices are up 3.9% year over year, with demand near 21st-century lows. How is this possible? NAR‘s existing home sales report on Thursday gives us insight into the why factor.

The median existing-home price for all housing types in August was $407,100, an increase of 3.9% from August 2022 ($391,700). All four U.S. regions posted price increases.

The simple answer is the same one I have been giving for years, especially after the summer of 2020: We have too many people chasing too few homes. We broke to all-time lows in active listings data in the worst time possible — the years 2020-2024, when home-buying demographics were the best in U.S. history, and we all paid the price with massive home price gains in a short amount of time. 

The other difference in this housing cycle is that credit is very normal, meaning everyone has to qualify for a home loan these days, so sales have real potential to get hard with rising mortgage rates. This happened after March 2022 when rates spiked faster than any other time in recent history. But even with the biggest home sales crash ever, prices are still at all-time highs.

Ladies and gentlemen, this was the foundation core premise of the savagely unhealthy housing market: Home prices can escalate out of control in a low inventory environment, and even today, with demand low, we are still dealing with this issue in a lot of markets
From NAR:”Home sales have been stable for several months, neither rising nor falling in any meaningful way,” said NAR Chief Economist Lawrence Yun. “Mortgage rate changes will have a big impact over the short run, while job gains will have a steady, positive impact over the long run.

What else did we learn from today’s report?

Low housing comps for the rest of the year

On the surface, housing looks like it is improving as the year-over-year sales decline decreases and the home price data grows. However, that isn’t the true story; it’s only true when you compare it to the biggest sales collapse period ever, which happened in the second half of 2022. Also, pricing was weaker in the second half of 2022 as well. It wasn’t just the seasonal price weakness last year; we had prices falling monthly to accompany that sales collapse.

So, when you see the year-over-year data get better, remember this context.

Year-over-year, sales fell 15.3% (down from 4.77 million in August 2022).

Inventory still negative year over year

From NAR: Total housing inventory registered at the end of August was 1.1 million units, down 0.9% from July and 14.1% from one year ago (1.28 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, identical to July and up from 3.2 months in August 2022. 

The housing inventory data has been negative year over year per the NAR data for the past few months. As we can see in the chart below, even with the biggest home sales crash in history for one year, inventory data has yet to return to the peaks we saw in 2007. Getting back to the four-decade average between 2-2.5 million has been a struggle.

As I have stressed time and time again, when you have normal credit channels, meaning the people who buy homes are in traditional 30-year fixed loans, the inventory channels will behave differently than they did in the years 2000-2007. Remember, people don’t sell to be homeless; they sell to obtain shelter most of the time.

Why are home prices rising year over year? Simply put, inventory is low, and demand isn’t collapsing like it did last year. With mortgage rates rising again and running into the seasonal soft period, we can see the percentage of price cuts increase with more weakness in demand.

However, with all the data we have now in 2023, we have a better guide to use it going out in the future, and this is why this weekend’s tracker will be very critical to talk about since mortgage rates are near 21st-century highs again.

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The Subtle Art of Orange Pilling

Every Bitcoin user has very different reasons for using Bitcoin in the first place. That is something that everyone should consider when trying to orange…



Throughout the years, I have presented the case for Bitcoin to a lot of people from a wide range of backgrounds. The list includes curious cab drivers, financial advisors, young software developers, skeptical policymakers, voiceless activists, and once even an IMF employee.

Needless to say, most of these attempts ended up falling on deaf ears. So I started asking myself “why would this person in front of me care about Bitcoin?” and immediately realized that getting a response was particularly challenging because—even among Bitcoiners—there is no common understanding of what Bitcoin is in the first place. Is it “peer-to-peer electronic cash” as Satoshi originally defined it? Or should we consider it as “digital property” as Michael Saylor suggests? Or maybe listen to Gary Gensler and define it as a commodity?

As tempting as it is to look for a common definition for Bitcoin, doing so during a time when even the most simple linguistic choices are under scrutiny makes such a venture uninspiring and, frankly, pointless.

What I decided to do instead was understand what each of those people really cared about and how Bitcoin could fit into their view of the world rather than expecting them to understand a subject they are barely interested in. As the saying goes, “If the mountain will not come to Mohammed, Mohammed must go to the mountain.”

By doing so, I realized it was unreasonable to act like Morpheus and expect my interlocutors to take a big orange pill. After all, if that approach barely worked with Neo who was “the chosen one”, why would it work with my brother-in-law or with a stranger sitting next to me on the plane?

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Because I’ve known for a while that Bitcoin’s nature is multifaceted, the very idea of one single entry point to a multifaceted concept did not sound right. Depending on where one lives, social status, professional background, set of beliefs, values, and environment, there will be a different (and smaller) orange pill that will be more appropriate for each person.

More categories may emerge in the future (Jason Lowery, for example, proposes a military interpretation of Bitcoin and the recent ordinals frenzy reminded us how valuable Bitcoin’s block space can be as its own use-case), but here are the four main buckets that I have identified so far—which represent four different set of problems that Bitcoin is solving for.

1 - Hard Money

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes —Satoshi Nakamoto

The first sets of problems that Bitcoin attempts to solve originate from a financial system that is broken in its most foundational aspects. For those not understanding, the problem can be described as having a similar nature (but, of course, different magnitude) to hyperinflation in Weimar Republic and Venezuela. The constant debasement of currencies (even the “mild” 2% inflation we all know about) has a tremendous societal impact, with those who are “close to the money printer” being the only winnersa phenomenon also known as the Cantillon Effect.

Unlike fiat money and commodities, such as gold, Bitcoin’s total supply is capped, which makes it the most scarce store of value in the history of mankind and, therefore, an ideal store of value in the long term.

For all those living in the half of the world that is experiencing double-digit inflation, this is a particularly interesting moment to understand how money printing and currency debasement can affect so many aspects of their lives. In fact, people who have lived through the 70s and those living in countries such as Venezuela, Lebanon, Zimbabwe, Argentina, and Turkey will be more receptive to the idea of Bitcoin as a way to preserve their purchasing power in inflationary environments.

This is arguably one of the most difficult aspects of Bitcoin to understand given the number of assumptions it requires us to challenge (e.g. “controlled inflation is good for the economy” or “fiat currencies are stable”). Yet, it’s arguably the most powerful orange pill that one could take.

2 - Superior Payment Network

Humans have invented the best financial tool in our history, and it’s an exciting time to be alive and use it — Jack Mallers

For the first time in human history, money and a payment network are integrated into one open and global system. Not only can Bitcoin serve as a store of value in the long term as explained above, but it also functions as a global medium of exchange that does not require any third party.

In a few seconds, money can be sent anywhere in the world by only paying a fraction of a cent. Compared to bank transfers, credit cards, and remittances, sending money through Bitcoin is significantly cheaper and faster.

People who don’t like bitcoin as a store of value can just use it as a payment system by converting it to the local currency at the two ends of the transaction. Why do that instead of using legacy systems? Perhaps to quickly send money during earthquakes and wars. Or to bypass remittance companies that take weeks to transfer money and charge up to 10% in fees.

The potential of Bitcoin just as a payment network extends to the most unthinkable areas. Micropayments have the potential to boost the creator economy and or solve the problems that have been haunting social networks.

3 - Freedom Technology

It would be a dark, dark world if Bitcoin didn't exist — Alex Gladstein

The two previous perspectives address the common criticism that “Bitcoin is useless”. But another common criticismoften paired with the former even though it directly contradicts itis the fact that (just like cars, computers, and most technologies) Bitcoin is used by criminals.

As crazy as it might sound to many, that’s a feature, not a bug. Because in those instances where it’s ethnicity, religion, sex, or political views that determine whether one is a criminal, having a financial system that cannot be weaponized by the government is one of the best insurance policies you can wish for. That is particularly true for two-thirds of the global population that lives in backsliding democracies or autocratic regimes.

Those who care about freedom and human rights should be paying very close attention to this technology. Bitcoin has already provided lifeline support for individuals in need for over a decade. Wikileaks would have not been able to expose serious violations of human rights and civil liberties without Bitcoin. Similarly, many in North Korea, Iran, Afghanistan, Ukraine, Hong Kong, Belarus, Nigeria, and Russia also use Bitcoin as a tool to escape the control and government censorship.

As we move away from physical money and the potential for financial surveillance and censorship increases exponentially, the world will greatly benefit an additional set of checks and balances to limit the power of governments and corporations. Understanding this is very important for all those that are active in promoting individual freedom and human rights in the most authoritarian corners of the world.

4 - Energy Buyer Of Last Resort

It is a win-win-win for everybody. It's a win for the environment and an inarguable win for the economy — Dennis Porter

Lastly, there is a relatively small crowd of people who might be able to appreciate Bitcoin for a very different set of reasons. Bitcoin constitutes an unprecedented opportunity to build a cleaner, more resilient, and more efficient energy infrastructure. Bitcoin can mitigate the problem of intermittencythe demand/supply mismatch that occurs with renewable energyand help with the $13B problem of congestion of the electric grid in rural areas.

Bitcoin miners can strengthen these grids and incentivize the deployment of more renewable energy by adapting to the fluctuations of power generation schedules since their rigs can be turned off at any moment without notice. Commonly referred to as “energy buyers of last resort”, Bitcoin miners are perfect for Demand Response programs. Last year, Bitcoin miners in Texas “returned up to 1,500 megawatts to the grid, enough to heat over 1.5 million small homes or keep 300 large hospitals fully operational”.

Bitcoin miners are also finding very creative ways to utilize energy that was previously wasted and many are arguing that Bitcoin is “the only available, practical and scalable technology when it comes to tackling the world’s most deadly greenhouse gas: methane.”

There’s (at least) four orange pills, and people don’t need to take them all.

Source: Author

One of the things I learned during my Bitcoin journey is that this is not a mono-functional technology like a washing-machine or an elevator. Because Bitcoin solves many different problems, its perceived value and utility will change significantly depending on who you talk to.

Those living in South Carolina might not care about censorship resistance or privacy as much as the local jobs that are created by a new Bitcoin company. The Turkish population might have not cared about Bitcoin as an inflation hedge (given the country’s situation, it should) during the earthquake earlier this year, but just needed a way to receive money as fast as possible. North Korean defectors like Yeonmi Park are not really interested in how Bitcoin micropayments can support artists online while they are being sold for less than $300 as sex slaves.

Listening and trying to understand who you are talking to is the most important thing you can do when presenting an idea. That is particularly true with Bitcoin, given the negative bias most people have towards it, how complex it is to understand, and how difficult it is to challenge some of the greatest assumptions that most people have.

This simple framework is an attempt to strategically identify the areas of interest of people who are new to Bitcoin and avoid overwhelming them with a big orange pill they might not be ready for.

Instead, by choosing between hard money, payment system, freedom technology, and energy buyer, I am now able to better structure conversations and elevator pitches when engaging with people and answering the usual “Uh! Tell me more about this Bitcoin thing!” question.

So go ahead, choose your orange pill and remember the most important question for Bitcoin is “why would one care about it?”

This is a guest post by Jesse Colzani. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Bitcoin fails to recoup post-Fed losses as $20K BTC price retuns to radar

Bitcoin is a bargain for some at current levels, but downside BTC price predictions are still firmly on the agenda.
Bitcoin (BTC) circled…



Bitcoin is a bargain for some at current levels, but downside BTC price predictions are still firmly on the agenda.

Bitcoin (BTC) circled lower after the Sep. 21 Wall Street open as $20,000 BTC price predictions resurfaced.

BTC/USD 1-hour chart. Source: TradingView

Bitcoin analysis: Hype, FOMO and a "slow grind" to $28,500

Data from Cointelegraph Markets Pro and TradingView covered a lackluster 24 hours for BTC price action, with $27,000 fading from view.

The aftermath of the United States Federal Reserve interest rates pause offered little for Bitcoin bulls, BTC/USD having dipped almost $700 the day prior.

Now, market participants returned to a more conservative outlook in the absence of tangible volatility.

“Something like this over the course of October would be perfect i would say,” popular trader Crypto Tony told X subscribers.

“Slow grind up to $28,500, followed by hype and FOMO, to then dump it once more.”
BTC/USD annotated chart. Source: Crypto Tony/X

Monitoring resource Material Indicators meanwhile eyed a so-called “death cross” on the weekly chart.

The death cross occurs when certain moving averages (MAs) collide, and here, the 21-week MA was on course to head below the 200-week equivalent.

“The 21-Week and the 200-Week Moving Averages are on a collision course for a DeathCross on the BTC Weekly candle Close/Open,” it warned in an X post on the day.

Material Indicators referenced a potential lower low (LL) at the weekly close.

“The 50-Week MA, may provide some temporary support and even trigger a short term rally, but if PA takes us there, it will print a LL which I believe opens the door to grind down to test $20k,” it added.

BTC/USD 1-week chart with 21, 200 MA. Source: TradingView

On the horizon was the liquidation of crypto assets by defunct exchange FTX — an event which could contribute to BTC selling pressure.

“If there is a base case for hopium, it's that FTX liquidators don't want to see too much price erosion before they start distributing, and may try to prop price up a little longer. That's purely speculative, but not out of the realm of possibilities,” the X post concluded.

Traders eye bargain BTC price levels

More optimistic takes included that from popular trader and analyst CryptoCon, who maintained that Bitcoin was in the first innings of its next bull market.

Related: Bitcoin short-term holders ‘panic’ amid nearly 100% unrealized loss

“Doesn't get much simpler than this. Bitcoin early and late Bull Market in green, Bear Market ends in red,” he commented alongside a chart shortly following the Fed news.

Just as confident was fellow trader Jelle, who suspected a prime buying opportunity for prospective BTC investors at current prices.

BTC/USD traded at around $26,600 at the time of writing, making September gains equal around 2.5% — still Bitcoin’s best month since 2016.

Per data from monitoring resource CoinGlass, Bitcoin has delivered losses every September since.

BTC/USD monthly returns (screenshot). Source: CoinGlass

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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