Will Crypto Bounce Back In 2022?

Summary:

Some experts believe that crypto markets will bounce back from the current crash in the next few months, others think that investor wariness is going to persist in the near-short term.

Crypto markets have witnessed huge corrections within the final two months. As of at present, the worldwide cryptocurrency market cap has shrunk to $949 billion, from the $3 trillion excessive it touched in November 2021. Weak world cues amid heightened inflation and rate of interest hikes have led to an enormous sell-off in crypto markets. Traders and merchants at the moment are questioning whether or not the crypto markets will bounce again once more this yr. Crypto trade consultants have totally different views on this query.

Whereas some consultants imagine that crypto markets will bounce again from the present crash within the subsequent few months, others assume that investor wariness goes to persist within the near-short time period.

"I strongly assume crypto will rise once more. By August 2022, the massacre and crypto winter ought to be over. By December finish or January 2023, Bitcoin might rise to an all-time excessive of $70,000," Dileep Seinberg, founder and CEO, MuffinPay, a invoice fee and utility token, instructed FE On-line.

"Few sturdy causes apart from geopolitical uncertainties are Crypto changing into recognised for its goal and utility. Authorities rules are going to be key drivers later within the yr," he added.

The correlation between crypto and monetary markets is rising. Cryptos have responded in tandem with the worldwide monetary markets which have additionally been hit on account of weak world cues.

As inflation goes to persist for round two years, consultants say that an imminent financial recession might proceed to make crypto markets fragile.

"Given the excessive co-relation of fairness and crypto markets, macroeconomic headwinds equivalent to decade-high inflation and rising commodity costs adversely affect crypto markets. US Federal Reserve's aggressive stance on quantitative tightening to tame inflation will additional worsen the downtrend in crypto costs. For the reason that US cash provide has been rising at a fee of 18 %, 3 times the expansion fee, inflation might be round for a pair extra years and isn't transitory in nature," mentioned Sharat Chandra, VP, Analysis and Technique at blockchain-based id administration platform EarthID.

"Fed has a difficult balancing act- to scale back inflation with out risking stagflation. If Fed retains rising rates of interest, the recession might be imminent and push fairness and crypto markets right into a tailspin. Crypto markets will proceed to be fragile and investor wariness will persist," he added.

Rajagopal Menon, Vice President at crypto change WazirX mentioned the inflation fee globally has been a serious concern for buyers. Within the US, it's at a 40-year excessive at 8.6 % and within the UK at 9 %.

"Rate of interest hikes throughout main crypto nations are additionally a rising concern as they reduce liquidity. Each the symptoms have led to an enormous sell-off. In India, the central financial institution raised the full-year forecast for the FY23 shopper value index to six.7%, which is greater than the goal, and the Indian rupee has hit a document low of 78.28. Therefore, the buyers have adopted a wait-and-watch stance because the early indicators are within the crimson. We count on this bearish market development to persist within the close to quick time period,"Rajagopal Menon, Vice President, WazirX.

Source: Financial Express

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

FastBull Featured

Remarks of Officials

Luis de Guindos, Vice-President of the European Central Bank (ECB), gave an interview with a journalist on June 16, local time. The main excerpts are as follows.

Q1: What prompted the decisions taken last week and what sort of interest rate hikes should we expect?

A: Inflation is very high and more persistent and broad-based than we thought some months ago. Our projections indicate that it will only gradually start coming down later this year, remaining above our target throughout the projection horizon. And it will continue declining in 2023 and 2024. We have provided forward guidance on interest rates by signaling two increases for July and September. We can consider a bigger increase if the inflation outlook persists or deteriorates. Our future decisions will be data-driven.

Q2: There has been criticism, partly because the Fed and the Bank of England started adjusting their policies earlier, that the ECB's rate hike is coming rather late in the day…

A: We started responding to inflation several months ago. In December we decided to discontinue net asset purchases under the pandemic emergency purchase programme (PEPP) in March. The current bout of inflation is a global phenomenon, although it started to affect Europe a little later than elsewhere, and the economic situation in the euro area is different from that in other economies, which explains why our response has been a little later than in other jurisdictions.

Q3: Are you concerned about secondary pressures?

This is a risk that we have to take into consideration. So far we haven't seen large increases in wage claims and settlements, but we need to monitor that situation very closely.

Q4: The ECB's macroeconomic projections have been revised significantly downwards. Is there a risk of a recession?

A: We revised the growth outlook downwards for 2022 and 2023 because of the impact of the war in Ukraine and because of the deterioration in the terms of trade resulting from the increase in commodity and energy prices. Our baseline scenario indicates, though, that we will not have a recession (defined as two consecutive quarters of negative growth). But we will have low growth. In more extreme situations, such as severely disrupted energy supplies, growth would turn negative in 2023.

Interview with Guindos

Risk Warnings and Disclaimers

Comments

Add to Favorites

Owen Li

South Korea's economy will grow at its slowest pace in three years in 2022, as the world faces supply bottlenecks, surging inflation and rapidly rising interest rates, the finance ministry said on Thursday.

Setting out its first economic policy initiatives, the new government of President Yoon Suk-yeol said it had lowered this year's growth forecast to 2.6% from 3.1% and raised the inflation forecast from 2.2% to 4.7%, the fastest since 2008.

"We are putting our utmost priority in stabilizing prices as that's our shared understanding," finance minister Choo Kyung-ho said, referring to Bank of Korea (BOK) Governor Rhee Chang-yong and other top policymakers, with whom he had met early on Thursday.

To help South Korean businesses reduce inflationary pressure, the government proposed to lower the maximum corporate tax rate to 22%, the average of countries in the Organization for Economic Cooperation and Development. The rate on about 100 of the largest companies has been 25% since 2018, when the former government increased it to pay for more social welfare.

South Korea's economy, Asia's fourth largest, last year achieved its fastest annual expansion since 2010. But as the Yoon administration came to office last month, the country was suddenly facing global supply chain disruption and resulting difficulty in sustaining exports.

The ministry said the whole world economy was suffering from bottlenecks, plus the Ukraine crisis, inflation, faster monetary tightening in major countries, and lockdowns in China.

Yoon pledged in his election campaign to support a "private-sector-led economy". His measures would help corporate South Korea cope with higher minimum wages, rising borrowing costs and the previous administration's limits on working hours.

Markets are predicting the BOK will keep moving aggressively after implementing 125 basis points of interest rate rises since mid-2021. The expected further rises will likely hit private consumption for households saddled with the world's highest debt loads.

On Thursday, the ministry said boosting capital investment in key technology sectors was one of its main policy initiatives. Between 8% and 12% of big conglomerates' investment in making semiconductors and organic light-emitting diodes will be deductible from corporate tax, up from the current 6% to 10%.

Separately, South Korea would improve foreign dealers' access to USD/KRW trading. This will help the country in its quest for inclusion in the MSCI developed markets index.

The government plans to extend trading time of the USD/KRW spot market to 17 hours - 00:00 GMT to 17:00 GMT. It will also allow dealers based abroad to participate, with details to be disclosed in the third quarter.

Currently, onshore USD/KRW trading hours are 00:00 GMT to 06:30 GMT and only locally licensed financial institutions can participate.

To revive share prices after the market's fall of almost 18% this year, the government has decided to remove capital gains taxes on retail stock investors, except for holdings worth more than 10 billion won ($7.74 million) in any one stock.

The government also plans to cut tax on stock transactions to 0.20% from 0.23% beginning next year.

($1 = 1,291.1900 won)

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

Devin

Rather than invent a radical new instrument to ease bond market strains across the euro bloc, investors reckon the European Central Bank might get away with cobbling together the best parts of schemes already contained in its policy toolkit.

The ECB on Wednesday promised fresh support and the design of a potential new scheme to temper a market rout that has fanned fears of a new debt crisis on the euro currency area's southern rim.

Its statement sent 10-year borrowing costs in Italy and Greece sliding as much as 40 basis points, the biggest daily move since March 2020 for the latter. In a week when yields across the bloc hit multi-year highs, the immediate reaction was one of relief.

So far, the ECB is likely to attach some loose conditions to the scheme, sources told Reuters later on Wednesday.

The ECB will spell out that the scheme's goal is simply to keep bond spreads in line with economic fundamentals, likely through quantitative benchmarks such as historical spreads, which then may be turned into a "traffic light" system to instruct staff on which country's bonds to buy and how much, the sources said.

"I hope that they have the intelligence to design (a new tool) in a way that's not too strict, keeping flexibility by purchases," said Patrick Krizan, senior economist at Allianz.

"The biggest error would be to be too committed and put themselves in a straitjacket."

The ECB has already drawn criticism for being too complacent over the risk that its plans to raise interest rates would lift borrowing costs for financially weaker nations such as Italy too far above those of safe-haven Germany.

With the bloc clearly facing that fragmentation problem, it is important for any new bond-buying tool from the ECB to be flexible, investors said.

So just like the pandemic-era PEPP emergency stimulus scheme, it would need to ditch the capital-key principle of buying bonds in relation to the size of economies, instead buying debt from countries which most need help.

Markets Suspect New ECB Tool to Address Bond Stress Could Mimic Old Tools_1

One suggestion is creating a new tool similar to the Outright Monetary Transactions (OMT) scheme, an unused crisis-time tool allowing for unlimited purchases of a country's debt.

The main sticking point for the original OMT programme is the requirement to sign up for a European Union bailout, often with unpopular conditions.

"The political price is quite high for the current OMT, so the ECB cannot do this alone, there must be something on the political side to design an OMT-light, which allows a country to be a bit protected," said Krizan.

Analysts said they would expect an OMT-like programme to come with conditions attached, but not ones as strict as those in the original programme. Sources told Reuters the upcoming scheme would feature loose conditions such as complying with the European Commission's economic recommendations.

Aside from fiscal requirements, "the size will be everything, the maturities of the bonds they will be looking at, these are the most important," said ING Bank senior rates strategist Antoine Bouvet.

The original OMT programme focused on buying shorter-dated bonds.

Yet another option is to design a package with traits of the OMT's precursor - the Securities Markets Programme (SMP), which did not include the OMT's strict, formal conditionality.

The SMP's positive was that it also allowed the ECB to buy bonds, without adding to stimulus already sloshing around the system, in a process economists refer to as sterilisation.

For this reason, France's central bank governor Francois Villeroy de Galhau has said bond purchases could again feature sterilisation.

The bank could also buy debt during a market stress episode, then sell gradually as conditions improve, thus avoiding increasing its overall balance sheet size, Villeroy has said.

The SMP had limited success however, and was terminated with a value of just 209 billion euros, not long after Draghi's July 2012 "whatever it takes" promise.

Still, Piet Christiansen, chief analyst at Danske Bank, expects something along the lines of the SMP.

"Sterilised purchases have been our baseline all throughout and I think that is what is to be expected, because the SMP programme was done in a way so it doesn't interfere with the monetary policy stance and the only way they could do that is by sterilizing the purchases," he said.

Investors urged the ECB to unveil detailed plans fast, warning that otherwise bond market relief would fade.

"At the end of the day people want to see action," said Francois Savary, chief investment officer at Prime Partners.

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Remarks of Officials

At 2:00 p.m. on June 15 Eastern Time, the Federal Reserve announced the results of its June policy meeting, raising rates by 75 basis points as the market had expected. This is the largest rate hike since 1994.

Meeting Highlights

1. In the statement, the wording that "inflation is expected to return to the 2 percent target" and the labor market will remain strong has been deleted and replaced with that "the Committee is strongly committed to returning inflation to its 2 percent objective."

2. The Committee anticipates that ongoing rate increases will be appropriate.

3. The dot plot shows that Fed officials expect interest rates to rise to 3.4% by the end of the year (150 basis points higher than the March estimate), and to 3.8% by the end of 2023 (100 basis points higher than the March estimate).

4. The Committee reiterated the monthly size of balance sheet reduction will be $47.5 billion, and it will be expanded to $95 billion in September.

5. The economic expectations have been cut, and expectations for the unemployment rate and inflation have been raised. GDP growth rate has been revised down to 1.7% from the March estimate of 2.8%; the unemployment rate revised up to 3.7% from 3.5%; overall PCE raised to 5.2% from 4.3%; core PCE increased to 4.3% from 4.1%.

6. The labor market is very tight and inflation is too high. In this context, continued rate hikes will be appropriate.

7. A 75 basis point rate hike is an unusually large one, and moves of this size are not expected to be common. Either a 50 or 75 basis point increase seems most likely at the next meeting.

FOMC Statement

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. (Wording about uncertainty about the impact on the U.S. economy removed.) The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum (full) employment and inflation at the rate of 2% over the longer run. (Wording that with an appropriate tightening of the monetary policy, the Committee expects inflation to return to the 2% target and the labor market to remain strong removed.) In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1.5% to 1.75% (with a 75bp rate hike) and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that was issued in May. The Committee is strongly committed to returning inflation to its 2% objective.

Overall, Powell's measures show that he is not too keen on using a 75 basis point hike as a guideline for market expectations. "Today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common." he said, "Either a 50 or 75 basis point increase seems most likely at our next meeting." He emphasized that the rate hike implied by the dot plot is actually a relatively smooth one, i.e. 50 basis points per meeting in the second half of the year. This is actually the same as Powell's remarks at the last meeting which eliminated market expectations of a 75 basis point hike. In other words, he is reluctant to raise rates by 75 basis points, but inflation is too high.

In addition, Powell has been emphasizing at this meeting that there are many factors not under Fed's control, and the mechanism of raising interest rates to bring down inflation is simple. That is, the tightening of the financial environment will be transmitted to the demand side of the real economy, and then inflation will be curbed by the match of the decreased demand with the current tight supply. But the Fed can do nothing about the energy and food prices, geopolitical factors, tight supply chains, as well as structural factors related to finance and the job market that have contributed to the headline inflation. The core inflation mentioned at the last meeting was not mentioned this time. The focus was put on headline inflation. And as many of the factors driving headline inflation are beyond the Fed's control, Powell may be concerned that market inflation expectations will once again push up inflation (i.e., artificially pushing up inflation).

What's interesting is that Powell remains optimistic despite the current high inflation, the Russia-Ukraine conflict, and supply bottlenecks. He believes that the economy can return to pre-pandemic levels, which can be seen from the economic forecast. However, the Fed removed the wording that "inflation will return to the 2% target and the labor market will remain strong", which is a bit confusing.

After this meeting, the market is also expected to enter the next debate: how much the rate to be raised in July. Although Powell prefers a 50 basis points hike, inflation should be considered. In other words, the Fed cannot decide how the situation will evolve in the future. The Fed can only raise rates according to the tightening policy. Whether inflation falls or not is left to chance.

FOMC Statement

Implementation Note

Press Conference Opening Statement

Risk Warnings and Disclaimers

Comments

Add to Favorites

Devin

Central Bank

After six days of losses European markets managed to break the cycle, closing the day higher, after the ECB said it was looking to speed up work on a crisis tool to deal with concerns about fragmentation in EU bond markets, and Italian bonds.

U.S. markets also saw a strong session despite the Fed raising rates by 75bps, while retaining optionality on raising rates in July by either 50bps or 75bps. This refusal to confirm a 75bps move for July appears to have taken some of the steam out of yields and given stocks a boost.

The dot plot projections which FOMC members use to project interest rate expectations would appear to suggest rates coming back down again towards the end of 2023. The move rather counterintuitively prompted a rally in bond prices and a slide in yields, as a well as a sell-off in the U.S. dollar.

It appears that the early week anonymous briefings by Fed officials during the blackout period to friendly journalists were on the money, as the Federal Reserve raised its key rate by 75bps in reaction to last week's unexpectedly high CPI number.

While the move was largely expected, last night's decision does raise the question as to why the Federal Reserve even bothers with forward guidance if one data point during a blackout period causes the central bank to rip up the guidance playbook.

While Powell tried to justify the move his reasons came across as weak.

What this about turn by the FOMC does tell us is that the Fed has become much more concerned about inflation than it was a few days ago, which seems strange when you look at some of the more recent economic data.

The Fed has consistently insisted it is data dependent, yet in the past few days we've seen data points that suggest the U.S. economy is slowing. May PPI and retail sales and record low consumer confidence all jar against the Friday CPI number.

We did see one dissenting vote by Esther George of the Kansas City Fed President who wanted to stick to the original guidance tramlines and raise rates by 50bps. The Fed downgraded its 2022 GDP forecast to 1.7% from 2.8%, a number which still seems optimistic.

As far as inflation forecasts are concerned the Fed upgraded its 2022 inflation forecast from 4.3% to 5.2%, while downgrading its 2023 inflation forecast to 2.6% from 2.7%.

At his press conference Powell kept his options open on a 50bps or 75bps rate rise in July, while saying it remained data dependant, and that 75bps rate hikes wouldn't become the norm.

In the aftermath of last nights Fed decision today's European open looks set to be a positive one, after Asia markets also got a lift from last night's events.

Now we've seen the Fed decide at the very last minute to rip up its forward guidance playbook, last night's decision increases the pressure on the Bank of England to follow suit later today with at least a 50bps hike in response.

The reality is given where the pound is now, and Governor Andrew Bailey's own assertion that 80% of UK inflation is imported, the central bank needs to send a message that it is also serious about tackling its own inflation problem.

Last night the Fed laid down a marker that inflation was its primary concern. For too long the Bank of England has given the impression it doesn't really care about its inflation target, and that needs to change.

While that may come across as harsh the evidence speaks for itself. Over the past decade the MPC has been very quick to cut rates and been glacial when it comes to raising them again.

While there are those who say it is foolish to hike into a slowdown because the economy can't support it, you can also posit that the economy can't support inflation at current or higher levels either, so it comes down to what is the lesser of two evils.

Inflation has a habit of becoming entrenched and embedded, and rate rises can be very effective in squeezing it out. A short sharp shock if you like is probably better than a prolonged income squeeze.

With the pound at current levels against the US dollar the central bank needs to look at the FX channel, and help keep a floor under the pound, which has been under pressure for weeks.

That means a 25bps today won't be anywhere near sufficient, and that we need to see a minimum of 50bps later today with a firm commitment to tackle current levels of inflation, which the Bank of England tells us have yet to peak.

The UK is already heading towards stagflation and/or recession whatever the Bank of England does now, with another energy price cap rise coming in October. To pretend otherwise is wishful thinking, and with the pound down 15% over the last 12 months the MPC needs to send a clear message, and not the muddled guidance we've become used to.

EUR/USD – yesterday's rally above 1.0500 proved short-lived, with the bias for a move towards parity remaining the underlying bias by way of the 2017 lows and support at 1.0340/50. This remains a key barrier for a move towards parity. Resistance now lies at 1.0630, as well as trend line resistance from the highs this year at 1.0720.

GBP/USD – the pound briefly slipped below the 1.2000 area to 1.1930 before rebounding earlier this week. This area remains a key support. A sustained break below 1.1950 opens up the prospect of the March 2020 lows. The 1.2160 area now becomes resistance, and above that at 1.2450.

EUR/GBP – fell back sharply from the 0.8720 area and April 2021 peaks. A move through 0.8730 targets the 0.9000 area We currently have support at the 0.8580 area, with a break below that targeting the 0.8520 area.

USD/JPY – having failed at the 135.50 area we've since slipped back, and could fall further towards the 133.00 area. A sustained move above 135.50 targets a move towards the 137.20 area.

Source: CMC

Risk Warnings and Disclaimers

Comments

Add to Favorites

Damon

Former U.S. President Donald Trump's desire to pull U.S. troops completely out of South Korea was serious and he kept the plan alive as his second-term priority, according to former Secretary of Defense Mark Esper's memoir, published last month.

In the book, "A Sacred Oath," Esper said Trump repeatedly pushed to withdraw the U.S. forces from South Korea, which, in his view, was not paying its fair share of the associated costs.

Esper, 58, Republican former secretary of the Army (November 2017 to July 2019) and former secretary of defense (July 2019 to November 2020) under the Trump administration, became uneasy whenever the commander-in-chief talked about the need for American withdrawal.

"I was able to make my best case against any such moves by reminding him that I had a global posture review under way ― which I did ― but only bought me time. Pompeo jumped in once to help, saying 'Mr. President, you should make that [withdrawing U.S. forces from Korea] a second-term priority,'" he said. "Trump responded with 'Yeah, yeah, second term,' as a Cheshire cat smile came across his face."

The episode shows that Trump's plan was never abandoned ― only delayed. Trump, who lost his reelection bid to Joe Biden, has hinted at running for the White House again in 2024, which would be a concern for South Korea's long-term defense plans.

During his time at the Pentagon, Esper said war with North Korea was a real possibility. In another critical event, he received an urgent call that Trump was ordering a withdrawal of all U.S. military dependents from South Korea and that he was going to make it official soon. This came only a few weeks after Trump and North Korean leader Kim Jong-un taunted each other about the capabilities of their respective nuclear weapons.

"Evacuating all American military family members was such an unexpected and dramatic move that many would likely interpret it that war was on the horizon, if not imminent. It would probably trigger a panic that would affect the South Korean economy, its stock market, air transportation, and a range of other things," he said.

"Kim would probably view a U.S. evacuation as a prelude to conflict … Would he strike first, targeting Seoul in a bloody assault? Maybe even seize the city of 10 million and then sue for peace before the United States could act with sufficient force … Nobody knew, but this was a dangerous game of chicken, and with nuclear roosters no less. If the president was going to announce an evacuation, then, we needed to be ready for war."

To the relief of Esper and so many others, somebody talked Trump out of sending the tweet announcing it.

Pulling US Troops Out of Korea Was Trump's Second-term Priority, Esper's Memoir Reveals_1

Throughout the book, Esper criticizes Trump, describing his former boss as too materialistic and impulsive. Yet he praised Trump's decision to have summits with Kim, for which his political opponents condemned him harshly.

"Many complained that Trump gave Kim what he wanted ― a high-profile meeting that raised his stature ― and received nothing in return. That is true in many ways, but Trump's engagement did get us off the warpath and kept things under control through the end of his term," Esper said.

"I had watched Presidents Bush, Clinton, and Obama try similar approaches dating back to the early 1990s with no real effect. Why not try a different diplomatic tack, especially when nuclear weapons are on the table?"

The previous Moon Jae-in government was criticized by some as "pro-China." This was how Esper felt when dealing with South Korea, which was "drifting into Beijing's orbit." He added that South Korea's strategy of maintaining China as its main economic partner while keeping the U.S. as its security one would not work.

"(South Korea) hopes that both approaches are compatible. They aren't, of course, yet this seems to be the path they were headed down," Esper wrote.