TRR Weekly Meeting Recap: Week Of October 10th 2022
In this week’s discussion, we continue to discuss the thematic play of the year - inflation, as well as what Q3 earnings season could entail for the market. There has also seemed to be more movement in the Ukraine-Russia conflict which may potentially hint that the conflict may not end anytime soon. Within crypto, the market continues to move sideways but institutional adoption continues to increase, which only serves as additional support for the growth and future of this industry.
The Persistent American Inflation
The CPI print for September came in at 8.2%, coming in slightly higher than what was expected (8.1%); lower than the previous reading of 8.3%. The markets took a hit after the reading came in, but has since slightly recovered as we all continue to guess where the market is heading. This has resulted in the probability of rates to be hiked by 75bps again during the November 2nd FOMC meeting jump from 75% to 95%. After all, the Fed has indicated that they would expect to end the year with a total hike of 125bps. Well, we now wonder if a short term rally could be in play if the Fed decides sticks to their word and decreases the final rate hike to be a 50bps hike rather than a 75bps one.
Figure 1: Breakdown of US CPI Contributors
Looking at the contributors to US CPI, it can be seen that the continued rise has been largely driven by an increase in services (although to be fair, every other component apart from energy has contributed to the CPI reading). Here is a view of how prices have changed compared to last year
Despite the Fed being consistently hawkish and aggressive with their stance on inflation, it still seems that inflation does not want to come down. This leads us to wonder - will the Fed have to start being slightly more aggressive; is there a chance that the Fed over-tightens? It is tough to say given that they have already been aggressive and the economy has been suffering, but we could see some increased aggressiveness by the Fed in order to bring inflation down faster.
Eyes On Q3 Earnings
Earnings season for Q3 of the year has begun, and early releases for luxury brand LVMH Moët Hennessy Louis Vuitton saw revenue at $55.1billion, which is up 28% from the same period in 2021. The economy is in a high-inflation recessionary state, how can this be? The company attributed a lot of its sales to the increase in travel (compared to 2021) as well as local buyers in regions such as Europe, US, and Japan. What this tells us is that the upper class population is potentially still relatively unaffected by the worsening economic conditions when compared to those in the lower and middle class. Regardless, there are still a lot of earnings to come out, and our eyes will be on tech earnings given the high-risk nature associated to tech (and crypto for that matter)
Ukraine, Russia, and China
After a period of relatively quiet news on the front of the Russia-Ukraine conflict, we saw an explosion on Crimea’s bridge and Ukraine president Zelensky’s office being destroyed as well. Oddly enough, the explosion on Crimea’s bridge seems to have been orchestrated by Ukraine via a bomb attached to a truck. Further yet, the driver seemed to be unaware of the bomb. This continued escalation makes it hard to believe that the conflict will end anytime soon. What does this mean for the energy supply issue to Europe; would this still continue to be an issue leading up to and during the winter? I mean, China’s President Xi did ask for there to be a peaceful de-escalation of the conflict, so we’ll see how much weight this comment carries.
Bitcoin Adoption Grows Despite The Bear
Bitcoin and crypto have been experiencing a slow grind to the downside, so there still has not been any major news on this front as the Coin continues to trade within its $18k-$20k range. Price action aside, we are seeing adoption for Bitcoin and crypto slowly increasing amongst institutions and large corporations. Recent news saw BNY Mellon announce they will be offering Bitcoin and Ethereum custodial services. This means, crypto services and investment products are slightly more widely available for institutional and high-net-worth investors, and more potential capital that will flow into the market when the bull market returns.
Google also announced that they will be partnering with Coinbase to begin accepting cryptocurrency as a form of payment for Google Cloud services. It was 4 years ago in 2018 that Google made a statement saying they will ban all crypto-related ads. Fast forward to today, and we have one of the largest companies in the world confirming that they will accept cryptocurrencies as a legitimate method of payment for Google Cloud. Oh, how the turn tables. Adoption continues to increase, which does nothing but showcase that there is value in this market as it continues to grow and mature.