February 26, 2024

Market run-through

The Bank of England governor Andrew Bailey, spoke at the Treasury Select Committee on Tuesday and said that the current UK recession may already be over and that there were ‘distinct signs of an upturn.’ Mr Bailey added that if you look at recessions going back to the 1970s, the range for all previous recessions was ‘something like 2.5% to 22% in terms of negative growth’, making the current 0.5% contraction look tame in comparison.

Minutes from the European Central Bank’s most recent interest rate decision were released on Thursday and showed a surprising resilience in holding interest rates high despite the economic weakness seen in many parts of the continent. ECB officials signalled they needed to wait at least until the end of Q1 and would need to see consistently declining inflation, slower wage growth and a modest economic recovery in order for them to lower interest rates.

Wednesday’s US FOMC minutes were a mixed bag, with some members believing that interest rates have already peaked, while other members saw risks of ‘moving too quickly’ on interest rate cuts. The latest Fed implied rates show the first 25 basis point cut nearly fully priced-in at the June meeting, with around 88 basis points of cuts seen in 2024. This is now close to the Fed’s ongoing narrative that rates will be cut slightly less and slightly later than the market’s more dovish pricing seen over the prior few months. Looking at the week ahead, Market participants will be on high alert ahead of an important economic indicator in the form of U.S. Core PCE. This particular data point is well known for being the Federal Reserve’s favourite inflation gauge and will likely stir up volatility within the FX space.

Andy Demetriades, FX and Payment Partnership Team Lead

Behind the desk

At this juncture, it appears that each passing week heralds a fresh pinnacle in the valuation of BTC. Just recently, we commemorated Bitcoin’s market capitalization surging past the $1 trillion mark, a feat previously accomplished in late 2021. Presently, Bitcoin dominates the headlines, with traders eyeing a prospective target surpassing $75,000. Undoubtedly, the influx of funds into exchange-traded funds (ETFs) stands as the primary impetus behind this surge. The active promotion of investment in Bitcoin ETFs by major asset managers exudes considerable bullish influence.

Initially, apprehension loomed when BTC prices fell by 20% shortly after the approval of US spot ETFs. While volatility was anticipated with the opening of floodgates for institutional capital, a collapse was not. However, with a subsequent rally of over 35%, reclaiming the $50,000 threshold, such trepidation appears to have dissipated.

A few weeks ago, I posited that a retracement was on the horizon, a stance I’m happy to reinforce. Despite the evident support from robust trading volumes, sustaining BTC’s current trajectory seems unsustainable. The $52,000 level emerges as a notable resistance juncture, prompting keen anticipation for developments in the week ahead. I strongly believe that any forthcoming correction presents a compelling buying opportunity, echoing the sentiment of traders to “buy the dip.”

Ethereum, too, has experienced an upward trajectory in recent weeks, buoyed by the anticipation of an Ethereum ETF. Despite Securities and Exchange Commission (SEC) Chair Gary Gensler’s assertion that Bitcoin approval remains the more viable option, with no commitment to an Ethereum ETF, ETH’s trajectory remains favourable.

The trading desk, last week was characterised by a flurry of buy orders, particularly for BTC. This was expected as during this time in the cycle, we normally experience an increase in buy orders. We saw $52,000, is $55,000 the next target? Or will we slow? We watch the markets closely to see what’s next.

Alex-Desmond Brathwaite, Senior Trader

Chart of the week

Tech stocks have again stolen the limelight over the last week, if they were ever out of it that is, with earnings from Nvidia having been the major risk for markets to navigate. Once more, the chipmaker blew through market expectations, while also delivering eye-popping sales guidance for the quarter ahead, sparking a broader equity rally pushing the S&P 500, Nasdaq 100, and the Dow to fresh record closing highs. Perhaps the most interesting part of this rally, though, is that gains for equities, and the tech sector in particular, have come despite rates continuing to ratchet higher, with Treasuries having sold off once more on the week, printing new YTD yield highs across the curve. As this week’s chart shows, the detachment of stocks from bonds is in contrast to the environment that’s been seen for much of the last 6 months, something that seems likely to continue given that this earnings season has proven how the sector is able to deliver on, and even surpass, earnings expectations no matter the rate environment.

Michael Brown, Market Analyst at Pepperstone

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