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Bitcoin breaks below 40K, and we can't see any positive sign after having the Bitcoin banned by the Russia. Russia follows China’s policy; therefore, it has blocked the Bitcoin payments and also prohibited the Bitcoin mining. While a ban on trading and transacting with cryptos in the country is also on the cards, simply owning or holding Bitcoin and other tokens may be allowed: “the growth of cryptocurrencies use creates threats for Russian retail investors, financial stability and threats associated with the use of cryptocurrencies for illicit activities”, according to Bank of Russia. More here. Bitcoin transactions are very popular in Russia with volumes of approx. $5 billions / year. Russia is following China's policy because the government wants to control the money supply in the economy.

On the other meridian, FED wants to impose his own crypto and launched yesterday a new project. "This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies". More on this Here

Some key benefits:

"It could provide households and businesses a convenient, electronic form of central bank money, with the safety and liquidity that would entail; give entrepreneurs a platform on which to create new financial products and services; support faster and cheaper payments (including cross-border payments), and expand consumer access to the financial system".

Any CBDC would best serve US interests by being privacy-protected, intermediated, widely transferable and identity-protected.

According to Powel: "We look forward to engaging with the public & paper not intended to signal it will make any imminent decision about the appropriateness of issuing CBDC"

This new sentiment catalyst pushed Bitcoin below 40K yesterday, and according to charts, the first level of support is 30K, then 12K.

What is your opinion on Crypto? How much will it go down from here Bitcoin?

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SPX gave back the gains at the end of the day, because investors lost conviction that an early rally had legs. Risk-On sentiment didn't last after China decreased rates. Fears of inflation and higher interest rates in accordance with Geo-Political conflict between Ukraine & Russia have sent markets in red at end of the session.

Concern that the Federal Reserve will aggressively move to raise rates this year is a much more powerful catalyst than Chinese bank intervention and stocks Earnings. Investors have been concerned about rising rates because they raise borrowing costs and could dent global growth prospects and douse the earnings outlook for companies.

Analysts at ING said geopolitical risks, notably the possibility of Russia invading Ukraine, could continue to add to pressure on rising rates concerns.

Gold & Silver touched new highs lifted by worries surrounding inflation and Russia-Ukraine tensions. Gold 1,842 & Silver 24.63 gains were unexpected in the short term when bonds are up and Interest rates are expected to grow but geopolitical context is also an important catalyst.

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We maintain our bearish bias on CHF.

Our expectation for four Fed rate hikes in 2022 means we now see US 10yr yields at 2.20% by 2Q22. The SNB remains one of the most dovish central banks in the G10, and we think widening yield differentials should keep putting downward pressure on CHF. We expect the further upside momentum in German Bunds yields should also weigh on CHF. Positioning in EUR/CHF has normalised somewhat compared to the beginning of the year but remains net short.

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China cuts Loan Prime Rates: 1 year to 3.7% (from 3.8%) & 5 year to 4.6% (from 4.65%)

The People's Bank of China cut its Medium-Term Lending Facility rate to 2.85%

• from 2.95%
• injected 700bn yuan with 500bn maturing
• 1 year MLF
• first cut since April of 2020

On the 7-day reverse repo today, rate cut to 2.1% from 2.2%

• 100bn yuan injected today
• 10bn yuan matured today

On Thursday this week, 20 January, we get 1 year and 5 year Loan Prime Rates set. 

A cut to the MLF will be seen as an indication the LPR rates too could see a cut.

Asian stock go higher after this Bank of China Move Nikkei +1% , Topix +0,89, Kospi +0,49, Hang Seng +2,38% 

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Yesterday markets were down with over 2% because disappointing Earning Results from banks like JPMorgan & Citi Bank. We are still waiting results of other big banks like Goldman Sachs, Bank of America. Morgan Stanley, to see if the lower trend will continue this week. The key driver to the current action in the stock market remains the spike in bond yields and announced Increased Rates. This Year stocks will be dealing with the highest inflation rate since the late 1970s, excessively high valuations, and an aggressive policy change by the Fed. 

2022 it's a year of challenge for stocks because we have to deal with:

• Lower Profit margin 
• To high valuations
• Less liquidity in the economy 
• Higher inflation 
• Weaker economic growth
• Weak consumer confidence due to inflation
• Flattening yield curve
• Lower earnings growth
• Weaker economic data than 2021
• Tighter monetary policy
• Reduced consumption

 
Technically, Stocks broke below yesterday Trend Support Line with momentum and also Vix is UP. Tech Stock was affected badly losing over 3,3% 

Stocks still have room to move lower from here. We have recommended to buy Agricultural commodities in November and Soybean it's up with 6%.

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• Goldman Sachs change their growth forecast for US  from  5%-6% in 2021 to 3,4% in 2022 because of two factors:
  spread of Omicron Variant 
• diminishing expectations for fiscal stimulus

Deloitte projects 4% GDP instead of Reserve Bank of Australia 5,5% 

Deloitte Access Economics says the Omicron variant manes the RBA forecast is too optimistic because omicron is Spreading at a rapid rate and half the workforce would likely miss an extra week of work in H1 of 2022.

But with optimism Deloitte inform us that Omicron would not cause the same economic problems as the first two waves.

Will economy drop into 2022 what is your opinion?! 

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“Based on rhetoric from the Bank of Canada in December, it was clear that labour market dynamics and outperforming economic data had created heightened concerns at the Bank that the output gap was closing more rapidly than expected,” wrote Silvana Dimino, a New York-based economist at J.P. Morgan, in a report to clients Tuesday

Dimino sees the Bank raising its benchmark rate by 25 basis points to 0.5 per cent in January; her team previously called for the first move in April. She expects there will be five rate hikes this year, which would push the benchmark rate to 1.5 per cent by year-end.  

She also expects the Bank to begin a modest run off of its balance sheet in the second half of this year.

As of mid-day Wednesday, overnight index swaps pegged the probability of a January rate hike in Canada at 46 per cent.

In October, Bank of Canada Governor Tiff Macklem indicated he would not tighten policy until the economic recovery was complete – something he expected to happen in the “middle quarters” of this year. But data since then suggest the economy has been outperforming.

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Prior was 6.2%

m/m CPI +0.5% vs +0.4% expected

Prior m/m reading was +0.8%

Real weekly earnings +0.1% vs -0.2% prior (prior revised to -0.4%)

Full report

Core inflation:

Ex food and energy +5.5% vs +5.4% y/y expected

Prior ex food and energy +4.9%

Core m/m +0.6% vs +0.5% exp

Prior core m/m +0.5%

Some notable categories:

New vehicles +1.0% m/m

Used cars and trucks +3.5% m/m (and +37.3% y/y)

Apparel +1.7%

Shelter +0.4%

Gasoline -0.5%

Food +0.5%

Gold is UP 

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Ayhan Kose, director of the World Bank's said "There is a pronounced slowdown underway, ..... Policy support is being withdrawn and there is a multitude of risks ahead of us." 

The World Bank is out with its latest economic forecasts: 

• Sees developed economies growing 3.8% vs 4.0% in June forecasts
• 2021 global GDP forecast 5.5% vs 5.7% in June
• Sees 2021 Japan GDP at 1.7% vs 2.9% in June
• Sees 2022 Japan GDP at +2.9%
• China forecast of 5.1% vs 5.4% prior
• Sees 2022 US GDP +3.7% +4.2% prior
• Sees 2023 global GDP at 3.2%
• A surge in omicron that overwhelms healthcare systems could trim another 0.7 pp from growth

Stocks grow consistent  SPX +0.92 Nasdaq 1,47 after optimistic Powel discourse

• The main thing we can do is foster a strong employment market, consistent with our inflation mandate
• In order to get a long expansion, we need price stability
• We will use our tools to bring inflation back down
• There are great benefits of a tight labor market
• It is really time for us to move away from emergency settings
• Doing so should not have a negative impact on labor market
• We're not seeing the progress on supply-side issues that we thought -- that all forecasters thought
• Over time inflation will subside, but the question is how fast
• Inflation will last until the middle of this year
• Fed has not made any decisions on the timing of normalization
• This year I expect the Fed will raise rates, end asset purchases and perhaps later this year allow the balance sheet to shrink
• We're going to learn a lot about the path of inflation
• It will take 2-4 meetings to work through balance sheet decision (4th meeting is June 15)
• Expects to see some relief on supply side later this year; if not there's a risk of inflation becoming entrenched
• We believed we would see material relief on the supply side

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As we started a new year 2022, we want to present you our conclusions on markets and an analysis of our managed portfolio. In this article, we will analyse four major assets: Stocks, Gold, Oil and Commodities.

After stellar gains registered in 2021, in 2022 markets are expected to grow at a moderate peace, due to the rising risks.

We are bullish on Gold and Silver, and we are also confident on a future increasing in agricultural commodities, as we also presented in our article: https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

Now let’s take a look on some factors that can influence stock markets in 2022:

Bullish Factors:

• The domestic economy is growing
• Consumer spending overall is strong
• Employment is expanding, and the unemployment rate fell to 4.1% from 4.2%.
• Corporate earnings are growing by 27% (Apple it's $3 trillion company & Tesla deliveries grow by 87%)
• Covid-19 Pandemic new variant Omicron is decreases in death rates

Bearish Factors:

• Rising interest rates: FED official announced this week that they see this year three, instead of two interest rates increase
• Some stocks are extremely overvalued, like FTNT (over 100%: yesterday we closed our position on FTNT) or MRNA. Also, almost 100 stocks from S&P500 index are up over 50%, which is too much in our opinion. If US interest rate will hit 5%, stocks will go down badly, similar to the 1987 crisis.
• Continuing inflationary pressures because of transportations issues. We already discussed this topic in our article Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley
• Global tensions between Russia and US on Ukraine / Kazakhstan, also China and US on Taiwan, which are possible to extend into some major conflicts.
• Covid-19 Omicron it's still here, and we cannot anticipate the implications of other virus mutations. If we have other lockdowns because of new pandemic outbreaks, stocks will be badly hit.

Other opinions regarding stocks:

JPMorgan Kolanovic says to buy the dip:

“Higher bond yields should not be disruptive for equities, but rather support our call for a growth to value rotation. […] We stay positive on equities and expect Omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll. As this wave fades, it will likely mark the end of the pandemic Omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity”.

On congested supply lines: “signs of supply constraints potentially passing their worst point”

BlackRock's largest fund asset has an optimistic view, but they raise concerns over China Covid19 policy: 

“The Fed has signalled three rate rises this year – more than we expected. Markets seem primed to equate higher rates as being negative for equities. We’ve seen this before and don’t agree. What really matters is that the Fed has kept signalling a low sum total of rate hikes, and that didn’t change last week. This historically muted response to inflation should keep real policy rates low, in our view, supporting equities.” 

“And not all spikes in long term yields are the same. Last week’s jump in U.S. Treasury yields was about the Fed signalling a readiness to start shrinking its balance sheet. This could result in a return of the term premium that investors typically demand for the risk of holding long-term bonds. This is not necessarily negative for risk assets as it can reflect an investor preference for equities over government bonds.”

Regarding China slows growth rate: “The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain the policy – at least optically – in this politically important year. This raises the spectre of more restrictions on activity, from targeted measures that keep the economy humming (Shanghai) to full-scale lockdowns (Xi’an). As a result, we believe downside risks to China’s growth have risen, even as Beijing appears bent on achieving its growth target this year by loosening policy.”

We think it's reasonable for Gold to push a higher price to 2500 after a huge stimulus amount, but it will happen only after the FED finishes raising the interest rates. Oil will slow down only after the inflation will also slow down, probably in the second part of the year according to Citi Bank Forecast 

We added to our portfolio some agricultural commodities and precious metals (Gold and Silver). and we sold some positions like: Tesla, Fortinet, Shopify, DocuSIgn, Disney, TradeDesk. In 2022 we plan to add more dividend stocks because we have a more neutral view on this year’s growth.

Further, I'm not a big fan of Crypto currencies. 40K for Bitcoin is a good price, but if it goes further under 30K, it's a good to buy and hold bet.

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Tech stock -3,5% and Bitcoin -5%  S&P -2% was hard hit yesterday buy Fed minute.

The minutes revealed that committee members think inflation risks were more persistent to the upside, and there was general agreement that the taper should be accelerated with three tentative rate hikes. News of new rate hike it's nothing new was announced by Chairman Powell, only factor that surprise the market was that some members felt that the Fed should commence running down its balance sheet soon after its first hike selling $8.50 trillion of bonds.

Negative sentiment was also sustained by Russia intervention in Kazakhstan and Omicron outbreak in Europe. 
We waiting another wave of selling today without a positive news catalyst   

Find below complete statement if you want to read all details

https://www.federalreserve.gov/monetarypolicy/fomcminutes20211215.htm

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Bellow will find a short fragment from interview 

• I think we're moving from a period that's been over a year in which we've had inventories drawing down not enough supply to meet demand to a period in which we're going to see, starting no later than the second quarter we believe, inventory is starting to grow around the world in an accelerated basis.
• So we think this is going to be a year where prices are going to go down rather than up. And we're looking at Brent going from an average of over $75 a barrel this past quarter to maybe $10 or $12 or $15 lower than that by the fourth quarter of this current year.

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Where are we today?!

Today, markets are in a recessionary stage because of more than a decade of financial bad investments; we are witnessing a process of money creation (Helicopter Money) to a scale that a few years ago was unimaginable for the financial world.

Money creation from nothing by the FED was growing with approx. 22% in 2020 because of the Covid19 pandemic outbreak, but if we have a look over the past 50 years, we have few times only 10 percent money increase from one year to another. To give you an idea about the magnitude of this move, it's a must to say that in WW2 money creation was only 15%, and it was further followed by a two digits inflation.

This process of money creation is happening at a global scale, including FED, European Central Banks and Japanese Central Bank.

What is Inflation?!

Inflation represents increases in the money supply, as a consequence of monetary inflation. If the FED will print more money, than a larger amount of money will chase the same amount of goods and services. Inflation it's happening also when production can't keep the pace, or when we have disruptions on transports of goods. Central Banks consider a small inflation as a good thing, as this will stimulate people to spend more money, therefore it also works as a catalyst for economy. It's famous that 2% represents a very good target for inflation.

When we have two digits inflation, we call it Hyperinflation, or inflation it's out of control, this being the worst scenario that could happen for an economy. There are many examples in the history, with hyperinflation that carried a huge negative impact over countries like Germany before WW2, Zimbabwe, Yugoslavia and Greece - more on this, at: https://www.cnbc.com/2011/02/14/The-Worst-Hyperinflation-Situations-of-All-Time.html

We talk about Deflation as the opposite process of inflation, when the money supply shrinks. In a Deflation scenario, a smaller amount of money targets the same amount of goods and services. As we mentioned earlier, a small inflation is considered good for economy, and this is also valid for a small deflation.

With little deflation, prudent investors are rewarded because their money are more valuable, but if we have an aggressive deflation (like 2008 scenario) the debtors are punished. High rates of deflation imply a high rate of defaults and further, shrinking in the assets value.

At the present moment, we are witnessing a deflation scenario because we register low discretionary spending. People changed their habits during the Covid19 pandemic, they now prefer low budget activities like watching Netflix with home-made popcorn, instead of going to the IMAX movie theatre. Very few from the middle class will celebrate anniversary birthdays on expensive restaurants with $250 champagne and Taxis.

Risk appetite will continue to slow down during 2022, a year that will be marked probably by more bankruptcies and lower corporate spending. Deflation is everywhere to be seen in 2022 and Governments will have to play a more decisive role for economies in the following years, as some sectors in the economies will start to collapse under the pressure of Inflation, while some others will be relieved under Deflation, thus creating a concurrent mixing Inflation / Deflation scenario, which emerged into a new concept: Crossflation.

What Is Stagflation?

Stagflation (economic stagnation) is characterized by slow economic growth, high unemployment rates, and a continuous pressure of the rising prices. Stagflation can be alternatively defined as a period of inflation combined with a decline in the Gross Domestic Product (GDP).

A challenging 2022 will bring more insecurity, but also new opportunities for informed investors that are willing to take risks.

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The major international indices rebounded on Wednesday, despite the concerns about the Covid variant and the Federal Reserve is hinting an early departure of its accommodative monetary policy.

However, the tone has quickly turned negative with the news that the United States became on Wednesday the latest country to identify a case within its borders.

The World Health Organisation stated that at least 23 countries from five of six regions have reported cases of omicron, “and we expect that number to grow.”

The UN agency expects to have more information on the transmissibility of the new variant of the coronavirus within days, but noted that hospitalizations were rising across South Africa, where the new variant was first discovered, and omicron is rapidly becoming the dominant variant there.

More important are studies that will be delivered next days from Pharma companies BioNTech & Moderna about vaccine efficiency on new covid variant Omicron.

If there will be bad news on vaccine field, we can expect a drop on SPX to 4200 - 4250 area in short time, and to 3600 in case of new lockdowns around the world.

If news on vaccine efficiency is very good, we will pass over lockdowns and we anticipate a rebound over 4500 pts.

It's possible to have a good opportunity to buy when infections will slow down after Omicron Outbreak.

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The news about higher prices of food abounds in online stream media. Agricultural prices will go higher in 2022 and will have a significant impact on CPI. The main reason of higher agricultural prices in 2022 are Shortage of Fertilizers. Fertilizers prices have grown up this year because of the higher prices of gas and transportation disruptions.

Crops benefit more from fertilizer treatments in the early phases of the planting season. Delayed or missed application during the cycle will almost certainly result in lower yields, which tightens the food supply and drives the prices up.

Transportation disruptions because of Covid19 outbreak has affected also delivery of parts for agricultural machinery. Many farmers acquired some agricultural machinery components from over 1000 km distance. Farmers from Ukraine – the main corn producer in Europe – bought agricultural machinery parts from Austria or Germany with considerable time delays (over three months). Many farmers are purchasing parts in advance for safekeeping.

U.S. farmers appear pessimistic. Agricultural producer sentiment has started to decline in recent months. The sentiment for future conditions is now nearly as low as it was in the peak economic closure of the 2020 pandemic. Farmers have expressed concern over high input costs – i.e., fertilizer prices – weakening their operating margins.

We play this trade idea to buy Agricultural Funds like:

• Invesco DB Agriculture Fund (DBA)
• Elements Linked to the Rogers International Commodity Index — Agriculture Total Return ETN (RJA)
• Teucrium Corn Fund (CORN)

For European traders, we have limited opportunities via Lyxor Commodities Refinitiv / CoreCommodity CRB EX-Energy TR UCITS ETF – Acc (CRN). Lyxor is a fund with over 56% exposure on agricultural products, and also precious metals (11.78%) and commodities stocks (11.35%).

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We have taken a Gold & Silver Position two weeks ago, at 1.710, and respectively 22.4 because we consider that Gold & Silver are the best bet against inflation, to add it at a portfolio: https://www.tipranks.com/investors/907783/topfxinvest.

We placed our funds via ZSILUS & ZGLDUS from Switzerland (Cantobank) considering primarily the safety of the funds, but in the TIPRANKS platform we added AAAU ETF and SLV ETF, as the aforementioned funds were not available.

Why do we like Silver & Gold in the long run, from a Fundamental point of view?

• Gold & Silver are growing with fast peace because of the inflation pressure, CPI m/m numbers are much higher than expected: 9% versus 6%.
• More than 50% of Silver’s demand originates from the industrial use. Also, being a malleable metal, Silver is just as good as Gold for jewelry making. It is also a good conductor of electricity, and it is used extensively in the manufacture of electronic components.
• The transition to clean energy is expected to drive physical demand for Silver in the coming years, particularly for using it for connections in electric vehicles and for components in solar panels.
• Growing of the Fifth Generation (5G) Telecom Networks will also fuel the demand for Silver in the next years.
• Mining companies are worst performing in the last decade because of poor investments in this area.

Why don’t we like Silver & Gold in the long run, from a Fundamental point of view?

• Monthly manufacturing PMI, or Purchasing Managers’ Index figures from around the world are losing the momentum. We have some decline in summer (55.6 to 54) but it's still above 50, that means we are still in the expansion cycle. If trend will continue, it will drag lower especially on Silver, but Gold also. JP Morgan’s global PMI reading steadied at 54.1 in September, and we see some flat readings.
• Speculation since June, that the Federal Reserve will roll back its generous monthly stimulus of up to $120 billion that it has provided to the US economy since March 2020. That speculation weighed on Gold and Silver prices in the earlier months. On the stimulus end, the FED announced last week it would conclude its asset purchases in mid 2022 by tapering $15 billion each month from the program over the next eight months. FED Chair Jerome Powell also assured markets that the central bank will be “patient” in executing the first post-pandemic rate hike, which will likely take place at the end of next year. Possibility of a rate hike is dragging lower Gold, but in the long run Gold will continue to grow because of the huge amount of dollars printing in the pandemic outbreak. We have recommended buying Gold from 1.32 two years ago. Gold will enter in the second wave of growth if it breaks the Flag Formation next months.

From the Technical point of view, Gold & Silver is breaking resistance this week and it's still a good moment to add them to the portfolio, for the next years. We consider that Gold will reach the 2500$-3000$ area. Gold is breaking from a Flag Formation and Silver is bouncing from Range area. Please consider the charts below:

Gold Chart

Silver Chart

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Shipping congestions will continually to persist long time from now, until end of 2022. Also, transportation prices will still remain high. After Covid19 that is “the perfect storm” for this, other factors influenced transportation further:

• Semiconductor chip crunch affected trucks production;
• Shortage in containers;
• Shortage in trucks drivers (most of them have changed their job since pandemic outbreak).

Instead of transportation bottlenecks, companies in this segment performed better than SPX. Companies like AP Moeller Maersk (MAERSKa) or Silo Maritime Perdana Tbk (SHIP) have grown over 150% in just one year.

The Freights Baltic Index, which measures global container prices, currently stands at an average $10,321 per 40-foot container, with over 400% price increase before pandemic Covid19 Outbreak.

Investment Bank Morgan Stanley, according to a research sent to investors last week, expects shipping revenues to stay high at least through the second quarter of 2022. All ports in US are opened 24h day but instead of that, we still have congestions since we don’t have enough trucks and drivers to deliver goods to consumers.

We find difficult and risky to invest just now in this field after 150% growth, momentum is too late, but who invested in this area will have some time horizon to cash out some profits.

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Do we have the opportunity to buy Palladium and Platinum right now, since the price dropped over 22% from all time high?!?

Prices are very attractive if we look on the charts below, but Fundamental Analysis tells another story:

• Palladium is used primarily as an emissions purifier for gasoline engines cars
• Platinum is used in the same way for diesel cars    
• Auto sector is continuing facing challenges due to micro-chip shortage
• Electric cars & hybrid technology are on the wave

We, personally, don not like to take trades without a fundamental catalyst or in opposition to Fundamental Outlook. From a technical point of view, we have interest in this trade but just for a very short time (a few days trade duration).

It's wise to wait a recovery in car sales and, after that, just take this trade.

What is your opinion regarding rebounding in Platinum or Palladium, or it is only a fake move?!

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Watch Here

China Evergrande main unit Hengda Real Estate will make coupon payments for onshore bonds due tomorrow

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They say short and long-run inflation expectations are now well above their pre-pandemic range. The Citi/YouGov survey showed 12 month expectations at 4.1% (prior 3.1%) and 5-10 year inflation at 3.8% (prior 3.4%).

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