This week we got a surprise from the two powerful banks, the Federal Reserve and the European Central Bank. Jerome Powell gave some indications towards dovish expectations.
Still, the European Central Banks could not communicate effectively, so the EUR/USD may likely struggle a bit the break higher before the end of the first quarter.
Today, the Bureau of Labor Statistics (BLS) released its latest report, and boy, it's a surprise. Over half a million new jobs were created in January, the highest since July 2022, with the most additions coming from the service jobs and government. Even more impressive is that it is the 8th constructive month where the payrolls beat expectations. There were massive revisions as well, with employment gains for November and December being 71k higher than previously reported.
Hourly wages also rose by 10 cents to $33.03, with the average workweek for all private non-farm payrolls increasing by 0.3 hours to 34.7 hours and the labor force participation rate ticking up to 62.4%
Job growth has been witnessed across a variety of different industries, such as pleasure and hospitality (up 128k from an average of 89k in 2022), professionals and business services (up 82k from an average of 63k jobs per month in 2022), government (up 74k), healthcare (up 58k) and retail trade (up 30k).
These numbers don't come without their own controversies. This job report relied heavily on seasonal adjustment, and unadjusted figures showed a record decrease of 2.5 million jobs. Still, this was enough to drive unemployment down to a record low of 3.4%, while the unemployment of black Americans dropped to a record low from 5.7% to 5.4%
With the US economy continuing to display a "strong resilience" despite the ongoing mass layoffs, I'm curious to see what the next payroll report brings.
Things have been looking rosy for the stock market this morning. Despite the global pandemic, many stocks have reached highs not seen since August 2020. Still, the head of Asia Pacific Trading Strategies at Citi and client favorite, Mohammed Apabhai, is ringing the alarm bells.
He urges traders to take profits from long positions and consider shorting the SPX500.
The warning is based on increasing correlations between the balance sheets and equity markets. He believes the SPX500 is 6% above the fair value implied by the current balance sheet changes. That could mean we are headed for a correction, meaning the SPX500 will most likely take a downturn and fall.
Time will tell if Apabhai's warning is correct and justified, but this serves as a reminder of the risks associated with the current markets. It pays to be aware of the downside risks before buying stocks too early and to be prepared to take precautions if the market conditions shift.
As I mentioned in the trading idea (click toggle to collapse whole text)
Optimism as a "Soft Landing" achievable?
Now the first month of 2023 is almost over, and we had a great start in the financial markets, actually, a fantastic start, as Goldman Sachs stated a couple of days ago.
This month's straightforward story of the macro environment has been reassuring for bulls across the markets. Both in the legacy markets and the crypto markets. It looks like the stars are aligned! Inflation is falling, and employment numbers look okay. Policymakers seem to have things under control.
We have seen some people declaring that the "soft landing" is real, inflation was transitory after all, the pain was just for one year, and the fear of a recession or depression was overblown. It seems like we got injected with 5ml of hopium.
Reality check, taking a closer look at "recover"
Although some may be hasty in drawing judgments, dunking on "bears" for missing the bottom, the facts are still available.
Even with indications of improvement, it seems like we collectively have the memory of a goldfish. It seems like we forgot we are still in the aftermath of the epidemic, and complicated geopolitics and the full extent of its effect have yet to be seen.
We must maintain some skepticism and reasonable expectations, especially concerning the core PCE (Personal Consumption Expenditures), which may have trouble meeting the 2% target.
Even while things may appear good on the surface, we need to take a step back and try to confront reality.
Since the start of this year, the old diversified 60/ 40 portfolio strategy (60% equities, 40% bonds) has been working again. According to market data, it has been the most profitable strategy this year again since 1987.
However, continue with caution. Maybe a "set and forget" overleveraged long and "long your longs" might be a bad idea as you might corner yourself into a risky position. As GS suggests, try to keep taking profits by selling your bags into strength if the S&P500 reaches around $4000 - $4300
A sane person doesn’t want to pay an 18 P/E multiple for 0% expected earnings growth.
Bank of Japan
Expect imminent reports from local media and the potential of the next BOJ governor candidate. Based on Governor Haruhiko Kuroda’s nomination in 2013, currently, the risks are leaning towards a more hawkish stance, particularly with leading BoJ deputy candidate Yuri Okina’s recent hawkish comments in late January.
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Amiya is currently leading the candidate and appears to be the most dovish among the frontrunners. If selected, it's likely that the USDJPY (reverse of JPY/USD) will, with the JGB yield lowering, and then will begin to flatten out towards the April BoJ meeting. On the other hand, if any of the other candidates are chosen, there will likely be an initial knee-jerk hawkish reaction, with USDJPY dropping quicky before it stabilizes again into the April BoJ meeting. Bu the end of the year, we can expect that hikes in the BOJ will be more likely.
So if Amamiya is selected as the BoJ governor candidate, it's likely that USDJPY will initially increase with JGB yields lowering and then will begin to flatten out towards the BoJ meeting. That's because the effect of the new candidate's policies would take time to take full effect. Still, over time the market will adjust, the yield will start to flatten out, as the BoJ meeting approaches, traders will start to price in the potential rate changes, and the JGB yields will start to level off.
According to Goldman, Amazon's Q4'22 earnings reports bring mixed results, with revenue growth slowing down due to an uncertain macro environment. Despite this, their 3P eCommerce revenue performed better than expected, and management stated that the global sales event was better than expected.
Although Amazon faced margin headwinds, their Q4 operating incoming performance was strong, going forward, Amazon should see multi-year operating income expansion due to the improved eCommerce margins, less International losses, and higher profit margin mix contributions from AWS and advertising.
Amazon is still a "buy" for the long-term hold.
Alphabet's/GOOGL leadership is well positioned to capitalize on long-term opportunities in "artificial intelligence". Despite the weaker-than-expected revenue, they are taking steps to balance investing in key growth opportunities and ensuring that those investments align with their desired trajectory.
The results may be the remaining bound in the near term as the market weighs its advertising and potential shift into computing. However, they're well positioned to reap the benefits and its long-term operating profile in the years ahead. Longterm, it's still a buying opportunity to invest slowly during these volatile times.
Am I actually trading the dollar instead of stocks?
The inverse correlation between the US dollar (DXY) and the SPX500. Perhaps it is a good idea to monitor the dollar (DXY); the SPX500 and bitcoin are still correlated.
If the dollar goes up, the SPX500 will fall, so pay attention to the inverse correlation between the dollar and the SPX500.
VIX Term Structure
The VIX term structure shifted higher today (Friday). This shift can be seen in the chart showing VIX yesterday and today, where the short end of the curve has shifted higher, meaning that volatility is increasing.
Investor sentiment is not as optimistic as yesterday, and it's a sign that the market might be less euphoric than yesterday.
When the VIX term structure shifts higher on the short end of the curve, it indicates that systematic risk is increasing since VIX is a measure of expected volatility, so when the VIX is higher, the risk of large market fluctuations is higher, meaning you should become more cautious and avoid taking on too much risk.
Federal Reserve Balance Sheet Rate of Change (ROC) aka "Greatest delta in the world" & Nasdaq
The graph below displays the rate of change of the Federal Reserve's Balance Sheet (Fed BS) vs. the Nasdaq
The rate of change of the Federal Reserve balance sheet continues to decrease over time and is probably expected to continue to do so.
In addition, it can be seen that although the two lines have been in the same general direction, they have been "decoupled," meaning they're now headed in different directions.
Specifically, the rate of the change of the Federal Reserve Balance sheet is continuing to go downwards while the Nasdaq appears to have stabilized and even increased :S
Will the ECB Overtighten, Putting the Eurozone's Bull Run at Risk
The European Central Bank (ECB) is responsible for monetary policy in the EU. The ECB's main focus is on inflation, as its target for inflation rate is 2% per year.
Currently, the eurozone has experienced a large bull run in assets due to the increased probability of a good economic outcome. Still, according to TS Lombard’s Oneglia, a few risks are on the horizon.
- The US economy is slowing down, which affects the EU through both trade and capital flows, which could put downward pressure on wages and would put the ECB in a position to increase restrictions or overtighten
- The easing of restrictions in China has not translated and still limited international impact on growth and inflation.
- High-frequency growth tracking has likely peaked, and there is a 3-month lag between the US and EU area of wage growth. Wages in the EU could be lower than in the US, making it more difficult for the ECB to achieve its inflation target.
- Credit conditions have worsened, and credit demand has declined. The ECB can respond by overtightening monetary policy to rein in inflation and protect the Euro.
Consider possible risks associated with the ECB policy when trading European stocks.
Shardeum is the latest Layer 1 network to enter the marketplace in pursuit of users. Recently, the startup received a major boost of $18 million in funding from a renowned VC firm, Jane Street.
The process is convenient and straightforward for those interested in trying out the network, with tutorials available at the Shardeum website and MetaMask/Blockwallet
Additionally, users can receive free testnet tokens from the Shardeum faucet and select from multiple projects and services listed on the platform.
Step 2: Get testnet tokens
Step 3: Use a couple of projects listed
it is important to possess an up-to-date Web 3.0 Passport for protection against Sybil attacks. Sybil attacks involve an attacker creating multiple accounts to increase their chances of gaining something.
To tackle this issue, teams have resorted to retroactively airdropping tokens, which can be expensive and inefficient. On-chain identity is one of the solutions that can be used to identify accounts with people more accurately, as opposed to bots.
Creating a Gitcoin Passport is a great way to be prepared for situations like when a project announces that only Gitcoin Passport holders will get access to something. Gitcoin is well-known within the Ethereum community, so ensuring your passport is up-to-date is vital before a project’s website is overwhelmed by too much traffic.
I've been recommending Blockwallet in several tweets.
I made the switch from Metamask to Blockwallet.
The user interface and functions are much better; it works better with my Trezor and switching between accounts. Extra privacy, flash bot protection & anti-phishing. You can also import your Metamask seed, etc.
However, I've seen one of their latest tweets, BlockWallet has a token called "BLANK"
If I were a betting man, which I am. I will assume that Blockwallet users are eligible for a nice airdrop. I would recommend installing Blockwallet and making some transactions.
You can export your Metamask seed and import it into Blockwallet. There's no need to reshuffle your assets etc., as some people think. Some people don't want to make the switch because Blockwallet has no mobile app right now. It doesn't matter. You can install Metamask or 1inch wallet on your phone and import your seed on your mobile wallet, which is not Blockwallet.
Chrome extension link: https://chrome.google.com/webstore/detail/blockwallet/bop
I've noticed this interesting DEX. So gTrade has a really nice UI but also has forex and stocks. I am still playing with the DEX. I recommend using the Polygon network to trade on the.
Again, switching from network and bridging is easy with blockwallet
Reminder Apex incentive program, which pays you to trade and keep tour trade open, is ongoing.
If you need a referral link: https://pro.apex.exchange/trade/BTC-USDC/register?affiliate_id=46&group_id=83
My referral code is: 46
In my opinion, this is the best DEX for trading bitcoin futures.
They also have a mobile app, Android:
Also, an app for iPhone
Ref code = 46
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In case you missed the previous newsletter and airdrops, mentioning once again
The Filecoin EVM chain is a powerful network that is currently underutilized. To start using the network, CollectifDAO is a great option.
It's a liquid staking protocol that serves a dual purpose - it operates as both the Filecoin testnet and a platform for issuing Liquid Staking Derivatives (LSDs).
Liquid Staking Derivatives (LSDs) are a type of financial instrument that allows users to benefit from cryptocurrency ownership without holding the underlying token. This is done by taking out collateralized loans where the underlying asset is used as collateral.
They can be used for hedging and speculation to gain exposure to the cryptocurrency market without holding the coins themselves. LSDs have become increasingly popular in the decentralized finance (DeFi) space as they offer a way to maximize profits while minimizing risk.
You receive 5 FIL
Stake 4.5 FIL for clFIL (Not all 5, just 4.5)
Scroll is a testnet that uses zero-knowledge proofs, like the networks employed by zkSync and StarkNet.
You can get some test funds from the Faucet tab, bridge funds between networks with the Bridge tab, and swap some funds via the Swap tab.
Scroll is actually two separate networks, so you will need to get funds for both networks separately or use the bridge to transfer funds from one network to the other.
It's a bit confusing, but here's a video I made that might help