Global contraction, Fed in focus, GameStop Mania returned, bitcoin steady above $20k

US stocks are finishing October on a down note as Wall Street braces for any signs from the Fed that they are near the end of their tightening cycle. ​ All the major global manufacturing readings show the economic slowdown is getting uglier. ​ The appetite for risk is struggling today as China’s manufacturing data was ugly and surging European inflation basically guarantees a recession. Russia’s suspension of the grain deal also raises fears that the war in Ukraine could lead to further disruptions in wheat shipments. ​

​Contraction territory

It started in China and then it continued in Chicago. ​ A global manufacturing contraction is here. ​ Factory activity is taking a big hit as China struggles with COVID, Europe is headed towards a recession, and as the US economy finally feels the impact of inflation and Fed tightening. ​

China’s October PMIs were very disappointing and it suggests that given the current COVID struggles that November won’t be providing much relief. ​ The official Chinese manufacturing reading declined from 50.1 to 49.2. ​

The Chicago PMI report dipped in October, which for some could support calls for an even greater drop with the ISM manufacturing reading tomorrow. Chicago’s business activity fell from 45.7 to 45.2, while prices paid jumped. ​ Factory activity in the US is clearly hitting a rough patch and that should be confirmed with tomorrow’s ISM manufacturing report that could fall into contraction territory. ​ If the key ISM reading does fall into contraction territory, it would be the first time since June 2020. ​

GameStop

A potential bottom for stocks on hopes that the Fed would provide more clues to the end of their tightening cycle provided a small window for a pump-and-dump move with GameStop. The rally for the video gamer quickly faded after a trading halt. There doesn’t seem like a lot of support for continued support higher, so the parabolic trap might have a lot of retail traders on the wrong side of this trade. ​ ​ ​ ​

Bitcoin

Bitcoin continues to hover around the $20,000 level as Wall Street hopes for the Fed to provide clues that we are much closer to the end of tightening. ​ Some traders are growing confident that a bottom is in place, options market activity is showing the need for downside protection is easing. ​ This will be a pivotal last two months of the year that should trigger a move outside of the $17,500 and $25,000 trading range. ​

It seems the bearish argument for crypto is stagflation and right now that is not the base case for Wall Street. ​ The crypto stabilization seems likely to persist as the recent wave of deteriorating economic data eases concerns that we will see 70s-style stagflation. ​ Demand destruction from a weakening economy should continue to help provide inflation relief and that will be positive for risky assets.

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