A busy Friday on Wall Street 

I am a HUGE fan of Christmas “ginormous” presents, Turkey with all the trimmings and dog swallowing baubles aside; it’s time when cliché thrives like bacteria on a mincemeat pie. So, I promise I will spare you from any more Xmas clichés in my pre-holiday market note.

A busy Friday on Wall Street 

Besides the weekend headline that Trump was considering firing Powell, more on that in a second, the best tidbit I read was the US exchanges has their busiest volume day since the day after Brexit vote.

Indeed, nothing like a panic parade during “the silly season” but with 80%+ of pro’s sidelined and the rest in the risk reduction mode, investors relying on asset prices to anchor based on a squiggly line on a chart was sheer folly. As such, loss aversion and the herd mentality took over as individuals’ tendencies toward irrational investment decisions were on full display post FOMC.  While I still don’t know if the market necessarily knows what to make of the last Fed hike, as I’ve never seen a post rate hike debate go on this long. Central banking is an exercise in confidence, data analysis and trying to predict the future. I thought Powell hit all the right notes and I have to agree with Secretary Steve Mnuchin that the market’s reaction is ” completely overblown”   Bloomberg I thought the Fed did exactly what I thought they would do, the market’s reaction, however, continues to befuddle.

However part of the more significant problem has been global pension funds have continued to divest equities in favour of bonds, while Yen strength has triggered some equity outflow from Japanese lifers. Unfortunately, from my experience, these US equity outflows are coming at the wrong time of year when big speculators have little appetite to stand in front of moves knowing full well these opportunities will be there post January 2. But there may be a sliver of light at the end of the equity market tunnel of despair as some sector reallocation may be on the horizon.  ” Meanwhile, Credit Suisse Group AG estimated on Tuesday that pension funds would move $63 billion out of bonds and $24 billion into developed market stocks. Investors often sell assets that have done the best and buy those that have done the worst at the end of the quarter to “rebalance” to a target position. Reuters

Trump firing Powell, say what ??

Honestly, I couldn’t believe my eyes when I read the Bloomberg headline over the weekend that Trump was considering firing Powell.

Thankfully Mnuchin came to the rescue to squash any thought’s of this happening as I was about to crazy glue my “sell button” down at  Monday’s open.

I’m, not a constitutional lawyer, so I will not wade in the debate if Trump has the power to fire a “Governor.” And while It’s not exactly surprising that Trump was up and arms about the Fed chair hiking rates and even downgrading GDP forecast for 2020 (#election2020). What is even more bizarre is that the President seems unconcerned that his constant Fed berating makes the FOMC committee even more resolute to prove their independence and stay the course on monetary policy.

Oil Markets

Incredibly in the face of even deeper production cuts, petroleum markets have hit fresh lows. Macroeconomic fear seems to be dominating sentiment and causing virtually every growth related asset class to melt away like a snowflake in May. And while this bearish run was was fun, its time to put my economist hat on for a few minutes. Even if  US GDP data for 3Q drops to 3.4 % and 2.9 % in Q4 those numbers are nowhere near recessionary fear, nor is China’s slowdown from a GDP of 6.5 % to 6.4 or even 6.3 % in 2019 for that matter. But this type of market fear tells be traders are going to adopt”bad news now is good news” approach (i.e. the weaker the data, the more dovish the Fed will be), which will create more irrational market moves.

In the News 

International Energy Agency chief Fatih Birol reportedly said US production could rival Saudi Arabia and Russia combined by 2025. Reuters  Indeed ” The Times They Are A-Changin’

US Shale producers to hit the brakes on 2019 spending. Reuters   I think this is hard to argue with prices falling, but with the technology advancement, well production cost has declined dramatically while major shale players have hedged a good chunk  2019 liquid volumes that could insulate some players. I’m not sure if December ” silly season” meltdown should be factored into the longer-term projection, but its a slipperier slope than most had anticipated


BTC appears to be anchoring its self to the $4000 level marker, and I’m getting an eerily similar feeling like $ 4000 is the new $6000 as investors are just waiting for the next big thing, good or bad to happen .

I think there remains a lot of downside risk given that regulatory actions have been reactive instead of establishing a strict cohesive policy substructure that would create worldwide investor trust. In my view, this continues to act like an anvil around the cryptocurrency markets neck. However, I remain entirely optimistic about the future of blockchain projects primarily in the financial sectors which should accelerate in 2019, and I think this will provide a high level of confidence for the future of crypto coins, assuming the regulatory committees can put forth some proactive actions and establish a robust public policy framework.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen’s market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.

Stephen Innes
Stephen Innes

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