Tech stocks get punished, US Data, Lira in freefall, Bitcoin forms a base

US stocks are getting chopped down after both earnings show margin worries are growing and as Treasury yields continue to rise. Best Buy earnings did not provide optimism that the retail industry will have an easy holiday season. Best Buy is seeing a great deal of theft, which is terrible for margins but also making some employees start to worry about their safety. Zoom also got punished after a wrath of analysts cut their price targets after earnings and guidance did alleviate growth concerns.

The Nasdaq is getting punished as investors scale down their mega-cap tech bets as margin worries grow and Treasury yields continue to rise.

US Data

The flash PMIs showed the US economic recovery is moderating and will likely remain vulnerable to supply chain issues and labor shortages. The November manufacturing reading increased to 59.1, matching expectations, while the service sector dropped to 57.0, a two-point miss from the consensus estimate.  Supply constraints will gradually improve at the start of the New Year, so the growth outlook for 2022 should remain fairly upbeat.

The Richmond Fed Manufacturing Survey dipped to 11, which underperformed the other regional surveys. Inventory levels are declining and new order volumes are slowing down.

The US economic recovery is somewhat keeping pace, but overall it is still positive, especially considering how persistent some pricing pressures have been.

FX

Turkish lire plummets

The FX market has completely lost confidence in the Turkish central bank. The lira is in freefall, as President Erdogan continues to stand by his stance of lower interest rates. The Central Bank of the Republic of Turkey sent out a press release warning of the risks of trading in this environment. The CBRT reiterated that it has no commitment to any exchange rate level.  So far the developments from Ankara have been contained as emerging markets have not been dragged down following Turkey’s currency crisis.

The euro welcomed some hawkish comments from ECB’s Makhlouf. He said, “Incoming data do not currently show evidence that would lead us to think that inflation pressures are becoming persistent, but this could evolve and we must remain vigilant and cognizant of the risks.”

Europe is not done fighting COVID and any restrictive measures could tilt the scales of whether inflation is becoming persistent.

Bitcoin regulation under discussion

Federal regulators provided further guidelines on how they will regulate the cryptocurrency markets.  We are getting closer to finding out how regulation will unfold for stablecoins, crypto loans, and custodial services. The Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation agreed to “evaluate the application of bank capital and liquidity standards to crypto assets for activities involving U.S. banking organizations and will continue to engage with the Basel Committee on Banking Supervision on its consultative process in this area”.

Regulation clarity is what is needed before investors can pile back into bitcoin and it seems the initial guidelines are not disrupting the longer-term bullish outlook.

Bitcoin was bouncing back earlier as dollar dominance eased after economic data and earnings suggest margin pressures are not easing, triggering demand for inflation hedges. Bitcoin came close to falling into bear market territory but it seems like the USD 55,000 level will be defended.

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