S&P 500 Run Looks to Earnings, Dollar Tumble to Rate Forecasts, Bitcoin to Market Stability

Nasdaq 100, Dow, Bitcoin, Event Risk and Dollar Talking Points:

• Market Outlook: USDJPY Bearish below 146; EURUSD Bullish Above 1.0000; Gold Bearish Below 1680
• Volatility was widely spread over the past week, but the strain from the US CPI and crypto market turmoil need not necessarily carry over into the new trading week
• There are plenty of event risks on tap next week to potentially drive further activity, including: inflation reports; 3Q GDP Updates; UK accounts and consumer share revenue

S&P 500 and Nasdaq 100 Post-CPI gains eased

Markets experienced some serious volatility in the past week between the surprise developments in the crypto market and the scheduled release of the US Consumer Inflation Report. Seasonal norms suggest we are moving into territory that naturally moderates in pace and momentum (referring to the monthly norms of the S&P 500, volume and VIX), but each year can play out differently. As we look into the new trading week ahead, there is a wide range of event risks that extend into official growth updates, central bank speeches and earnings among other notable quotes. For guidance on risk trends, the SPX saw a very marked shift down in volatility on Friday, following its biggest single-day rally (5.5 percent on Thursday) since the height of the post-pandemic recovery. While the moderation in the market’s favorite inflation gauge — the CPI — was larger than expected, it did not push the measure much closer to the Fed’s 2.0 percent target. A slightly lower terminal rate for the Fed may have a greater impact on the relative value of the dollar or emerging markets, but risk assets may struggle to squeeze more juice out of that event. As such, we likely need another, possibly different, push to get the market moving again.

Chart of Nasdaq 100 to Dow Jones Industrial Average Ratio and 1-Day ROC (Daily)

Diagram Created it Tradingview platform

Bitcoin, UK financial stability and the ECB

While there are plenty of planned event risks and high-profile big macro themes to take advantage of going forward, it’s worth keeping a careful eye on the threats lurking around the edges of the financial market. The most prominent such threat is the uncertainty of the crypto market. While Bitcoin may have jumped on Friday (perhaps in conjunction with traditional risk assets such as US indices), the full fallout from the FTX drama does not appear to have fully played out. There were calls from various defi-influencers and even news outlets for those in the market to move their crypto off exchanges – presumably to avoid getting involved in further unforeseen liquidity runs. It may be a new market, but it seems to be experiencing the same types of panic from the old ones. Meanwhile, crypto exchange liquidity issues are not the only area of ​​possible threat. The UK fiscal plan is due on Thursday and those who monitor UK yields or the pound back at the end of September will no doubt remember well the crisis from the mini budget news. There is also an ECB report on financial stability risks tentatively due in the middle of the week, which will naturally draw on economic concerns.

Chart of BTCUSD with 7-day volatility measure and 1-day rate of change (daily)

Diagram Created it Tradingview platform

Top planned event risk with GDP and revenues

For top planned event risk, there are a few categories that should be closely monitored for volatility potential. I’ll bail on inflation and the Fed talking for the dollar call below, but growth concerns remain a looming abstract threat in the distance. The inversions of the US Treasury yield curves have long since turned on the yellow threat light, but we have yet to see an official call from the NBER. Data such as US retail sales and the NAHB housing market index report are important updates, but are unlikely to solve America’s economic status. For the US capital markets, the earnings calendar will be a bigger focus for me this week. Walmart and Home Depot will reflect on consumer trends and inflation, while Alibaba’s report will provide a China perspective. China’s economic situation is usually unclear, but the October data should still be recorded, and Presidents Biden and Xi’s meeting on Monday will be important. Add to that 3Q GDP readings for the Eurozone and Japan and we’re going to have a pretty comprehensive update on global health.

Critical macro event risks on the global economic calendar for next week

Calendar Created by John Kicklighter

Dollar faces particular trend risk if Fed speaks and inflation expectations Gas rate forecasts

With indices and other sentiment measures looking for another fundamental motivator to carry on, the US dollar could see its own significant move in the second half of this final week, finding it easier to follow up. The DXY index’s break below the 100-day simple moving average was a historic event. It ended 366 trading days in which the index stayed above its long-term average. The break was significant technically with one of the biggest single-day declines in years, while the week’s -3.9 percent was the biggest since March 2009. There are three broad themes motivating the dollar, including the currency’s safe-haven role and relative growth potential. . However, the pullback in the expected Fed terminal rate until mid-2023 is likely to be a productive issue among currency watchers. The NY Fed’s consumer inflation expectations report on Monday will be followed by many Fed speeches throughout the week. Be sure to have your Webster Fedspeak Thesaurus handy.

US Dollar Chart with CPI, 100-Day SMA and 1-Day ROC Release Dates (Daily)

Diagram Created it Tradingview platform