El Salvador Sell-Off & What Next For Bitcoin

Okay, very good morning to you. It's Wednesday the 8th of September. I hope you're doing well. Sorry I couldn't get a video to you guys yesterday, just putting the finishing touches to the Amplify Me project which goes live on the 15th of September, so next Wednesday. So really looking forward to sharing that with you guys next week. But otherwise, what am I going to talk about in this briefing? Well, let's start with the charts and get straight to it. Before I begin, if you're watching this on YouTube, really appreciate it if you could like and subscribe to the channel if you've not already done so. But having a look at the markets this morning, we've seen a little bit of a sell-off here, broad-based in equity index futures. Just been speaking to the guys at Newsquawk, the analyst desk, and there's no— there's not been one single headline trigger, but a couple of things here from a technical perspective. The S&P, you can see a bit of an acceleration through the breakout beneath what was the support levels from the prior day's session and also the overnight Asia-Pac range low at 4513.25. So just triggering a bit of sell orders. And typical in that fast money type breakout move, you see exits at the first kind of clearest definable point, and the pivot levels often provide that cue. And so a little bit of a hiatus as we've moved down to the S1 in that move this morning through the European cash open. Looking at the NASDAQ future, same kind of case here. Got a near-term level of support found from yesterday afternoon's low before the ensuing rally that came in towards the back end of the, the US session post-European exit. That also brings in that low that we were seeing back on the afternoon on the 3rd as well. So levels to keep an eye on if we do remain a little bit heavy today in the NASDAQ. Looking at the broader range, obviously there's quite a definable double bottom there. You can see from the price activity from the second and also the third. So any breakdown of this price, NASDAQ does have scope technically to trade a little heavy today. And you've got the S2 as well around that same supportive area around 15560.51 type price activity. Nothing really too much though to spook people. I mean, this isn't certainly anything to get too panicked about, I don't think. Just a bit of softness. We're still fairly elevated in the bigger scheme of things, I would say. the move in itself in equities. So just promoting what would be more classical risk-off trade to a moderate degree this morning. So the 10-year equally so on the mirror reverse of what we've had equities just breaking out of some of the range that had been in play over the last 12 hours or so. And the 10-year is just moving a little higher, up 5 ticks this morning. Consequently, with that risk-off tone, you're seeing gold also come up to the top end of its range here. Any breakout through that overnight APAC high at around the 1802 mark, just knocking on that door at the moment. Wouldn't be surprised to see a run-up more aggressive toward the pivot level just before there at 1806.5. And the futures would be that low we printed back on the, the 2nd, which would be a target on the upside for any run higher that we might see in the yellow metal. Crude prices pretty flat overall, nothing too interesting there for the time being. Don't forget the oil inventory data are all bumped a day later than normal, so the APIs weren't last night, they'll be tonight at 9:30 London time. Always the case with the Labor Day holidays, of course, and with oil just kind of sitting there at the moment finding some near-term resistance from the $70.19 area in the futures. All right, well, one of the things I wanted to talk about and get straight into to start with was Bitcoin. And obviously the crypto space came under some fairly aggressive selling pressure yesterday. And as you would have seen, um, Bitcoin nurses losses in wake of El Salvador's glitched rollout. Now, a couple things here I just wanted to talk about, and I guess most prudent to just bring up the Bitcoin charts. And just to stress, I'm looking at Bitcoin futures here rather than the actual spot price, if you want to call it that. So here, just a bit of context over the recent week's worth of price activity. You can see here in the run-up to the adoption of this being legal tender in El Salvador, even though we'd known this for a while. Over the last few days, there'd been lots of talk about, you know, could kind of mark this memorable day about its more mainstream adoption in El Salvador. There was going to be, I think, $30 million worth of buying going into the, into the actual coin. But that had seen a degree of kind of optimism going in, and then yesterday's kind of wipeout happened with these glitches. And we reversed a large part of that. So when you actually look at the move from yesterday, I mean, obviously it was very aggressive from the high to low. We're talking about a move of near 18% in the futures. Although we're seeing a little bit of added pressure this morning, in fact, we've only just taken back those gains that were seen built into the price in a somewhat buy the rumor, sell the fact type fashion, I feel. I still don't buy into too much that El Salvador is going to kind of completely switch to using crypto. US dollars will still remain the dominant currency of choice, and obviously the real test of time will come in the weeks and months ahead about how consumers really adopt and use that in a more transactional way, and whether or not then the actual crypto in itself can stand up to that type of more practical usage. So I don't think it's too much of a game changer, to be honest. And certainly if you're looking on a daily chart, I mean, yesterday's support on the daily bars was nice and clear really for a target on that sell-off. Um, you can see here going all the way back to that low that was seen in Feb of '21. More recently you've got that range support low that we had in early to mid-August, and the price pretty much respected that to the dollar and then saw a bit of a bounce to where we are at the moment. So For me, that's a key level. As I've said, we bounced quite aggressively off the initial low on the dump yesterday in Bitcoin. However, we are back down around $1,300 this morning in the futures trading at $45,395. I'd be looking at $43,780 as a big level of support. If broken, wouldn't be surprised to see a run back down to $41,300, which would be these highs you can see here. And here, and a break of that, well, then it starts to see more, more heavy selling down, probably towards this kind of area of $37,000, $36,000. So that area there though, near-term intraday, is really what's quite key. Interested to see on daily close whether we close above or below that level will be quite indicative for, for near-term price action as we go through the rest of the week. All right, moving on elsewhere, a few other things that I did want to talk about. Um, first off, I did talk about the initial sell-off we've seen this morning. As I said, I don't think it's anything too sinister for the equity move. I don't necessarily see persistent downside emerging throughout the rest of today, necessarily, not unless anything unexpected comes out. The close on Wall Street was a little bit mixed, so outperformance in the NASDAQ up marginally, 0.15%, whereas the S&P was down a third, the Dow down 0.75%. Asian stocks did snap their 8-day winning streak, so perhaps to a certain extent that explains why you've seen a bit of moderation in the equity space going into this morning. The Japanese government said they're going to extend their COVID emergency measures to end this month but will gradually ease COVID restrictions beginning in October, according to local press. So just a little bit of the wind coming out of the sail of that market, given the Suga news and the recomposition of some of the indexes in the Nikkei 225 that we had with the inclusion of Nintendo and other firms and so on. So I don't find that pullback that surprising. Meanwhile, in China, just sticking with the region, one thing to be aware of was some comments that we had from the vice governor of the People's Bank of China, who said that the country will maintain prudent monetary policy and not resort to a flood-like stimulus. However, he did say in a news conference that there is space for monetary policy is still relatively big. So again, this kind of more communication to the market. The Chinese market tech space has seen quite a nice rebound actually from that aggressive sell-off from the crackdowns we were seeing over recent weeks, and they're just continuing to support that kind of idea to, to promote stability in the market at the moment. The other headlines, just to cover off, I don't think really this has too much near-term implication for sterling. However, perhaps it has more medium-long-term repercussions for the Conservative government. And this comes as the UK is set to take the lead among developed nations in raising new taxes that will help trim the pandemic budget deficits. Now, you know, if you rewind the, the briefings that I've done over the months and certainly over the year and a half or so of the pandemic, when they were the UK was rolling over things like the furlough scheme and things like that. As much as I do think that these were necessary things, of course, for not just the economy but also for society at large, the one thing I did say at the time is there's no such thing as a free lunch. And we're seeing that now come to fruition. And this isn't going to be unique. The UK is just one of the first out of the gate in the developed world to do this, whilst in mainland Europe, as they have done from the beginning, have kind of lagged within the phases. Of, of, of what we've seen, whether that's the actual COVID waves, the actual rollout of vaccinations, the actual reopening of the economies, the actual now more fiscal discipline is just the latest that we're seeing the UK be ahead of. So a couple of things to be aware of here. It's in total a £12 billion charge on workers and companies. It's going to be brought before Parliament today. So you're probably going to get a lot of media headlines criticizing, I'm sure, Boris Johnson. And the reason of that is that the National Insurance, a payroll tax, will rise by 1.25% from next year, and that breaks one of the Conservative Party's manifesto pledges not to increase any of the main rates of tax. However, such as Boris proving relatively Teflon in the, in the political space, I mean, the pressure, if anything, not from opposition but more internally with perhaps friction with the emerging kind of, um, reputation of the Chancellor Rishi Sunak, is that I don't actually think in the bigger picture, um, breaking a manifesto in a once-in-a-century type pandemic, I think, gives enough flexibility to at least navigate what otherwise would be something which would be a lot more politically harming at this point in time. It's kind of a unique situation. I think it gives, um, the Johnson, um, and the Conservatives enough wiggle room, to be honest. So overall, from a market impact, I don't think this is necessarily a net buy or sell sterling situation. I just think it has potentially political ramifications more longer term. But don't get me wrong, we're a long way off any types of, uh, rushy challenge to the, to the BoJo leadership, albeit that's what a lot of people are thinking at the moment these days in the future. Um, one other thing I wanted to mention was an FT exclusive overnight from this chap. You probably recognize him now. Um, he's very outspoken, non-voting member, uh, and tends to be of a more hawkish disposition. This of course is James Bullard of the St. Louis Fed, and he said the Fed should press ahead with a plan to dial down its massive pandemic stimulus program despite the abrupt slowdown in US jobs growth last month. He said, quote, the bigger picture is that taper will get going this year and will end sometime by the first half of next year. So the reason why this was a little bit interesting was because he's basically going against the grain of how markets have kind of repositioned themselves in the thinking over tapering with the hawkish, more accelerated taper argument done, um, given the fact of how poor the return of jobs has been. Bullard sticking to his guns at this point in time. There was a little bit of moderate strength overnight in the greenback, but it's faded as we've gone into the European Open, so there hasn't really been too much long-lasting impact on the back of that. The other thing as an update is US stimulus. This is— you can see this little guy hiding between the doors here. The reason with that is you know, Biden's got his eyes on him. And this is, of course, is the US Senator Manchin, and who said would only support a maximum of $1.5 trillion in the spending plan. Now, slight problem for Biden, of course, because his spending plan is $3.5 trillion. And the reason why this is, of course, particularly important is because as a senator, the Senate is an even split, and one dissenter against them Biden's plan is a problem for passage within Congress. The House and Senate committee, to give you context of timeline, have until the 15th of September, so next Wednesday, to write specific legislation on how to spend that $3.5 proposed trillion. Manchin, though, I must say, was careful in his Wall Street Journal piece not to close the door on future negotiations. There's a good article here that I'll be happy to share if you're, if you're interested. I have retweeted it from the Amplify Me. So you can see the logo here. Just look for Amplify Me on Twitter and it goes into some of the kind of wish list, if you like, or the requests that Manchin is making. So for me, such as all things politics, Manchin is just angling for what he wants. Will he concede in the end? Probably, yes. Will Biden have to step off that $3.5 trillion size? Possibly, but it might just come with some recomposition of that funding to appease Manchin to get him over the line to agree to it. This is all politics playing out. We've seen this with Brexit, we see it with, um, other infrastructure bills have gone through the US. Manchin knows he's important, and what would you do in that situation if you wanted certain types of other funding positioned elsewhere. Well, you caused some problems. You've still got until Wednesday for this deal to run before really you need to write more specific legislation. So I'm just going to force the issue to get what I want. And so in the end, deal-making typically happens. The other thing then, the final thing I wanted to mention, was Stormwatch. We're still keeping an eye. We're obviously in the midst of hurricane season, and after Ida caused a lot of problems overall and complications. We're now monitoring a disturbance which has a 50% chance of cyclone formation in the next 48 hours. And the reason why I'm keeping an eye on that on the National Hurricane Center is that it's developing over central and eastern Gulf of Mexico. And so obviously this is the very strategically important point for on/offshore platforms, oil and gas refineries, and so on and so forth. So worth just keeping half an eye on that. In terms of the day ahead and what's on the agenda, it's really quiet in terms of the docket for the UK European morning. I think there is a Bund auction, fixed income trading in, uh, in Germany. However, the focus will be in the US afternoon. No major 1:30s, but we're going to have the JOLTS job openings for the US, and obviously the market quite sensitive to the job situation, so probably half an eye on that. You've got the Bank of Canada interest rate decision. Um, not expecting any real change here from the BoC. It's pre-election statement-only meeting. That election in Canada happening of course on the 20th of September. Um, and then the oil inventory numbers, as I said earlier, they're going to be later on tonight. So everything gets bumped a day because of Labor Day holiday. And you do have the Fed's Beige Book coming out tonight. Not typically a market mover, But perhaps interested to see on a more breakdown at the 12-district level across the nation of the general feel of economic conditions, particularly given the very splintered situation with how varied the COVID case rate has been and thus economic activity across different pockets of the United States. Speaker-wise, Bank of England Governor Bailey speaks with some of the more senior MPC members ahead of, or at, the Treasury Select Committee hearing today. This is when they discuss things like the July Financial Stability Report, the August Monetary Policy Report. These are things the market has already had access to and has already reacted to. So the TSC is essentially the Bank of England reporting to their Treasury officials of what it is that's going on at this point in time. Very rarely does it constitute anything market moving or anything new that is said. Otherwise, probably the one of the other major things looking out for today is Fed's Williams. Fed's Williams very much on that hawk-dove scale aligned with Jerome Powell. Given the context of that disappointing US employment report we saw at the end of last week, I'm quite keen to see what Williams has to say because he is speaking specifically on, as you can see here, the economic outlook and monetary policy. So that's definitely one I'd have penciled in on your calendars. Keep an eye on if you're trading, um, really across different asset classes, particularly dollar-related in the FX market. Kaplan speaks after market, and you do have $38 billion in a 10-year note auction as well coming out in the US to be aware of. That is it. I'm going to leave it at that, let you guys get on with the day. Any questions at all, feel free to drop me a comment. Otherwise, see you same time tomorrow. Thank you.