TRR Weekly Meeting Recap: Week of October 24th 2022
In this week’s discussion, we talk about big macro events that had occurred (we took a break last week hence there was no recap), and macro events coming up. Events include the appointment of Rishi Sunak to the UK’s new Prime Minister, Xi Jin Ping continuing his reign as China’s leader, and the Bank of Japan’s act of strengthening the Yen. Looking forward, the month of November has FOMC and the US Midterm Elections, which could act as major events in determining how the market moves. Within crypto, we saw prices show an uptrend for Uptober, and microcaps within crypto were outperforming most of the market.
Major Economic Regions Making Headlines In October
UK
The first region to make another headline in October was the UK, as Rishi Sunak came in as Prime Minister after Liz Truss was ousted. The appointment of Sunak has all eyes on him now, as he is due to release his economic plan on November 17th after a delay from the initial release. Sunak seems to have prioritized patching the debt hole that the UK has, and Sunak may have plans along the lines of cutting spending and implementing higher taxes totalling up to 50 billion GBP. This contrasts to Truss’ plan which placed a greater emphasis on growth. If we take a look at who are the players holding UK’s debt, it should come to no surprise that it needs to be addressed
Insurance, pension funds, and the BoE hold a good amount of UK’s debt, and inability to repay would put these players in danger. Is a form of YCC on the cards? We shall see, but it does make sense for Sunak to look into addressing this issue.
China
In China, we saw that President Xi was re-elected to be China’s leader, with his leadership team stacked with his allies. This leaves us to wonder what it means for China and their global relationships, especially the US. There was a recent article that stated that Xi was willing to work with the US for mutual benefit. One would see this as a positive sign, given that it would bring back more globalization of trade between the two nations and hopefully reduce the cost of goods sold. China did reiterate their stance on continuing with the Zero-covid policy, but one can only assume that this would be lifted soon sometime in the near future. After all, the Chinese stock market and the Hang Seng Index has been suffering, as the Hang Seng Index dropped below the 15,000 mark for the first time in 13 years. That is 10+years worth of returns wiped out. This only leads us to wonder that China has to act to somehow revive the economy again.
Japan
What has been going on in Japan lately? A summary was shared by Twitter account @zerohedge
We saw that the Japanese Yen was tumbling against the US Dollar, which eventually led to the BOJ spending close to $50billion USD on propping up the value of the Yen. The effect of this can be seen in the chart below.
Figure 1: Japanese Yen per USD
There just seems to be a mismatch between the BOJ’s monetary policy and the Japanese government, which could lead to a very unpredictable economic situation for Japan. There seems to be a trend though - Governments and their Central Banks having a mismatch of policies, sound familiar?
November - What To Look Forward To
As the year comes to a close and November begins, say goodbye to the month of gains in October. As for November, there are 2 major events in the US that could serve as major market movers - FOMC and Midterm Elections. With FOMC, many are expecting and have priced in another 75bps hike, with there only being a 12% chance of it being a lower hike.
Figure 2: November Rate Hike Probability
Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html
There shouldn’t be much surprise here, given that the latest inflation reading for September came in at 8.2%. However, what we feel is important to note is what JP Morgan has recently came out to say, which was that if rates are only increased by 50bps instead, “the S&P500 could surge by 10% in a single day”. Although it is unlikely to happen in the November FOMC meeting, a 50bps rate hike could very well be something that happens in the December hike to close off the year. This comment by JPM reiterates a thought we shared a couple of recaps ago, whereby we mentioned that eventually a rate hike will have to come in at less than 75bps which would serve as a bullish catalyst for markets.
As for the US Midterms, our initial prediction was for markets to have a run-up leading up to midterms, as favorable economic conditions would be something that current President Biden and the Democrats would have wanted to keep voter confidence in him. Unfavorable macroeconomic events and the US’ inability to address the economic situation has led it to worsen as 2022 went on, and it seems as if confidence in Biden is at a low.
The Uptober Narrative Holds
For the month of October, Bitcoin managed to show some gains and was the first positive month since July 2022 as it closed at slightly above $20k. Good sign, but we still have a long way to go in terms of entering a bull market where we will see prices have a major upward trend. With Bitcoin being green for the month, we noticed that many alt coins were also showing strong upward price action, but more specifically many microcaps seemed to have outperformed the rest of the crypto market. Traditionally, crypto market recovery would be led by Bitcoin and Ethereum, but given how the industry has developed and gained more investors and market participants over the years, we wonder whether there is a possibility that promising alt projects begin to outperform Bitcoin and Ethereum when the market narrative turns bullish again. We at TRR believe that GameFi could be the next vertical that leads the market when the bull run returns, so stay tuned for more around this and our thoughts in our annual report that is currently in the works.