1

iTrust Daily Insight

Image
28th October
iTrust Daily Insight
Edition 10.28.2019

October 28 — US Federal Reserve on Wednesday, potential blockchain efforts in China and potential progress on US-China trade talks likely to continue to affect markets this week

October 28 — News and Analysis to Inform your Trading Day 

Market data 7 am California time, 3 pm London time

  • Bitcoin:  $9,362 (up another 10% over the weekend after a 10% price on Friday afternoon US time) (Source: Coinmarketcap.com)
  • Digital currency price movement today: mixed over last 24 hours; some up as high as 15%, some down a little (Coinmarketcap.com)
  • Number of digital currencies with market cap over $1 billion: 13  (Coinmarketcap.com)
  • Market Capitalization of Bitcoin: $168.7 billion (Coinmarketcap.com)
  • Gold “F” futures contract: $1495 (source: Yahoo Finance)
  • Silver “F” futures contract: $17.83
  • Copper “F” futures contract: 2.6830 (Yahoo Finance)
  • Oil “F” futures contract: $56.78 (Yahoo Finance) 
  • DJIA: $27,141 (up 1/2%)  (Yahoo Finance)
  • S&P 500: $3,041 (up 1/2% to an all-time-high) (Yahoo Finance)
  • FTSE (main London stock index): 7,336 (basically unchanged today) (Yahoo Finance)
  • Shanghai stock index: 2,980 (was up 1/2% on Friday) (Yahoo Finance)
  • VIX (volatility implied in near contracts of S&P 500 futures in US): 12.9 (Yahoo Finance)
  • Probability of 25 bps cut at Oct 30 meeting of US central bank (Fed FOMC): 94% — up from 20% early last month (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are unchanged from current rates (1.75%-2% target range) after Dec 11 FOMC meeting: 5%
  • Probability O/N rates are only 25 bps lower than now after Dec 11 FOMC meeting: 78% (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are 50 bps lower than now after Dec 11 FOMC meeting: 17% (source: CME Group’s “CME Fed Watch Tool”)
  • US 10 year Treasury yield: 1.85%  (WSJ.com)
  • US 2-10 yield difference: +0.17% (i.e., positively sloped — normal — yield curve) (WSJ.com)

Today’s big news:

  1. For those who missed our analysis on Friday regarding the dramatic price action for digital currencies on Friday, please review: https://get.itrustcapital.com/itrust-daily-insight-34/
  2. Over the weekend market participants bid up the value of digital currencies another 10%
  3. Markets now seem to be “pricing in” no economic impact from Britain’s departure from the EU
  4. The US military killed the head of ISIS; we expect no lasting impact — economic, political, or otherwise
  5. The futures market in the US is expected a rate cut from US monetary authorities on Wednesday; equity markets may react a little positively if the rate cut occurs.  We expect an equity sell-off if the rate-cut does not occur
  6. We are seeing press reports about positive comments on US-China trade negotiations having been made in the Chinese press.  After reviewing official news agency Xinhua’s website for ourselves, we could not find any such articles. 

Analysis:

  1. To be clear, the largest drivers for value creation going forward is an overall healthy economy — that is why US-China trade relations, the potential for new IP protections inside China, US monetary policy and the US political cycle are the most important events we follow.  Today we do not see anything new on any of those key drivers but we continue to monitor all of them closely.
  2. Gold prices will continue to be driven primarily by fears of economic dislocation* or fears or future inflation**
    1. * during times of extreme monetary stress, economies can very quickly convert to gold not only as a store of wealth but also as a means of exchange.  South Koreans very quickly adopted gold when the won came under attack at the end of the 1997-1998 Asian Economic Crisis and before that the population of Hong Kong once completely switched to gold in just a few days after a major bank failure.**
    2. ** in the west many have seen movies of medieval people biting their coins to see whether they were “real”.  What was actually happening was that the population was checking whether they could still bend the coin in their teeth.  If yes: the coin still had enough gold content to be bendable.  If not: the king had so debased the coin with other metals that the person could no longer bend the coin in his teeth.  This was a primitive form of making money less valuable, which meant it would require more currency to buy the same goods — ie inflation.  Today, monetary authorities just indirectly or directly print more money if they want to create inflation (or reduce the value of the debt they owe).  Now, as during medieval times, some will buy gold before any such inflation (or debasing of the currency) occurs.  Gold is seen as a traditional store of wealth, and, as the examples above indicate, are even in modern times, even sometimes becomes an actual means of exchange when a population loses faith in its paper currency.
  3. Gold market participants will want to pay close attention to any comments that accompany the Fed’s interest rate decision on Wednesday.  News is expected at 11:15 am CA time, 1:15 pm Chicago time, 2;15 pm New York time.
  4. Over the past 3 days, prices for digital currencies have been dramatically affected by the prospect of big injections of liquidity and legitimacy either from Libra or from some consortium of Chinese firms or both.  In addition to market fundamentals such as those mentioned in our analysis point #1 above, we believe developing news of technical factors regarding Libra or any new Chinese foray into some sort of blockchain-based digital currency will continue to affect values of already-established digital currencies; we will do our best to continue to provide timely information and analysis as they become available

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

For all media inquiries, please contact Blake Skadron at b.skadron@itrustcapital.com.

Share this article
Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin