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Crypto crash: All anyone is talking about this morning is the chill winds blowing from the crypto winter. Bitcoin slumped under $18,000, striking a low of $17,600 over the weekend and is struggling to cling to the $20k mark today. Ether also plunged to its weakest since Jan 2021. Exchanges all over the place are halting withdrawals amid liquidity problems as investors (bagholders) rush for the exits. Rising interest rates, an acute risk-off mood across markets, a thinning of liquidity is all to blame: in short the end of free money from the Fed means the artificial pump that created these assets is no longer working. Look to MicroStrategy (price of Bitcoin is under where a possible margin call could occur) and Coinbase as two of the most heavily exposed stocks. Saylor, the pumper in chief at MSTR, is the bagholder of all bagholders. Also, Tesla, which will need to mark its Bitcoin holding down in its next quarterly results at the low for the quarter, assuming it applies GAAP…something like a $500m loss. It’s all Fugazi….sooner or later these mad speculative bubbles always end. Even long-term HODLers are starting to wobble…this $20k battleground will be pivotal.

European stocks moved higher in early trade, led by real estate and travel & leisure stocks. The FTSE 100 is holding the 7,000 handle for the time being. Crude oil prices have stabilised after sharp falls last week. The S&P 500 managed to rally on Friday but still closed out its worst week since 2020. The Nasdaq rallied over 1.4%. Dip buyers are certainly hunting around some of the most beaten-down tech names. Asian shares were mixed overnight. Wall Street is closed today for a holiday so there may be some relief for risk today but overall, the set-up appears dodgy. 

JPM: The S&P “has spent little time below 15x this century and had a pandemic low ~14.7x. Hypothetically, if you cut consensus FY2023 EPS estimates by 20% ($250 to $200) and apply a 15x multiple you get to 3,000 in SPX.” 

Last week the S&P 500 entered a bear market – usually these last about 1-2 years and decline about 38%. Volatility remains high and the Vix posted its highest weekly close since April, though it is yet to really blow out.

In FX, the euro is a tad firmer at 1.0520, whilst sterling is holding steady at 1.2230. The yen is hovering just under 135, close to last week’s 24-year low for the Japanese currency.  

This week the focus is on Jay Powell’s two-day testimony in Congress. Expect the Fed chair to reiterate the central bank’s desire to tamp down inflation, which keeps headline risk elevated. Remember this doesn’t stop until the Fed does – and it will make monetary policy restrictive before the year is out, implying a couple more bumper hikes at least.

The Bank of England’s Catherine Mann, who voted for 50bps last week, might be discussing sterling weakness in her speech today – “Monetary Policy in the Global Context”. Meanwhile, ECB chief Christine Lagarde appears before politicians at the European Parliament. 
 

Equities 

EasyJet shares fell 4% as the airline cancelled more flights over the summer. Capacity will fall to 87% of 2019 levels in the current quarter, down from 90%. In the next it will fly 90%, down from 97% planned. Although the industry is affected by staff shortages, it appears to be more of an EasyJet problem…IAG shares rallied over 2%, Ryanair rose over 6%. 

ABF – Primark sales jumped as shops reopened. Revenues rose 32% on strong food and clothing sales. Shares nudged up 1%. 

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