5 days on from Jerome Powell’s latest speech we see a week with strong gains in soft commodity prices and energy has eased off slightly.
We are keeping an eye on these as deflation/inflation is a major theme in markets with expectations for either likely to drive monetary and fiscal policy.
In his speech Powell spoke about targeting a 2% inflation rate and encouraging a moderately higher figure in the near-term to make up for the lower than 2% figure we have seen. He also mentioned that interest rates would likely be at zero for years which was only surprising in the sense that they were not considered to be going negative.
Capital markets are in a bit of a no-mans land at the moment, with risk assets selling late into last week but without a lot of momentum. Our most likely scenario involves consolidation – ranging price while selling volatility, or being sold alongside volatility also being sold with some deleveraging.
We haven’t seen a lot of action from our thought so far that weakness in risk assets is more likely to come through in other assets – gold, bitcoin, USD if inflationary but are committed to following this through for the rest of the year.
Short of event-risk manifesting itself, we expect to see volatility trend lower. In the image below the previous epochal range is in the horizontal channel, and we expect a trend towards it if current conditions continue.
Digital assets have been weak recently, after the August DeFi boom. Many commentators are suggesting that if that was all the bull-market had, that it was a bizarre instance of a bull market. In one example of the type of moves we have seen, chainlink is now back under $10 – a 50% price reduction from its high around $20.
For now we are taking note of which assets are recovering well and show potential for the future and perhaps some portfolio adjustments and purchases can take place in the rest of 2020.
Microstrategy announced an expansion to their earlier announcement that they were adding to their decision to place the companys treasury in Bitcoin by purchasing $175 million USD of bitcoin.
There has been a discussion of who might be next to make similar decisions.
BTC/USD Chart: Daily
Although BTC could be vaguely said to be consolidating, it looks ready to reverse here.
There has not been a lot of movement on this front the last week, however the USD was given the opportunity to trade higher and declined while gold has consolidating in an ever-tightening range.
The US Dollar index had looked like it would reverse after trading out of its consolidation/flag pattern and just has not really gone anywhere.