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The economy remains strong, inflation sticky, and the markets in a slump. This week’s PPI, PCE, and numbers were higher than expected. The , or Personal Consumption Expenditures (PCE) price index, is the Fed's preferred factor for measuring inflation. It rose 0.6% in January. We can expect the Fed to do what J Powell has been promising, a longer duration of hikes, which will probably mean a terminal rate between 5.5% and 6%.
The inverted yield curve in the bond market remains a persistent reminder about the possibility of recession, with the 10-year note rising 3.95% on Friday. However, Goldman Sachs is of the view that the economy may be strong enough to weather the inversion period.
What is worth noting is the effect of a liquidity crunch, where more liquid assets are being sold to make payments to counterparties. Notably the Eurodollar Index has dropped, meaning that a major source for international trading is drying up.
Remember to ask any follow up questions on Discord
Stock Watch
Stock Tickers to follow:
- Macro-Dependent: Short-term US Bills (USM6)
- Oil: RIG, SLB
- Tech: AAPL, MSFT, GOOG
- Risk Off: USD
The US dollar topped 105 after the bad PCE news. Short-term treasury bills (USM6) are benefitting from the renewed effort of the Fed to raise rates over a longer period of time. Oil experienced a slight bounce this week, though prices are expected to firm up given a bevy of conflicting factors — i.e. a drop in Russian oil exports up to 25% and increased activity in China, versus the release of US oil inventories and a stronger US dollar. Oil stocks in general closed up on Friday but down for the month.
With the news this week indicating a higher terminal rate, the strength of the US dollar makes holding cash a less volatile option.
Though tech stocks (e.g. GOOG, MSFT) have suffered from the market conditions, the buzz over AI remains a long-term ticker to watch. In addition, there are positive reports about Apple’s (AAPL) research on a new blood glucose monitoring system and Amazon’s (AMZN) acquisition of One Medical for $3.9B.
Crypto Watch
Crypto Tickers to follow:
- “AI” Narrative: FET, AGIX, OCEAN, RLC, RSR
- “ZK Snarks” Narrative: MATIC, OPT
- “Bitcoin as L1” Narrative: STX
- “Own the Casino” Narrative: GMX, GNS, GLP, MLP
We reported last week that ZK technology is being developed by MATIC, and this is part of a wider trend within the industry as it will prove essential in creating scalable and frictionless security on-chain. has already upgraded to include ZK tech. Optimism’s fault detection security system has been adopted by Coinbase to power its L2 network.
Bitcoin has made notable gains during a bad economic environment given the development of its Layer 2 network, Stacks (STX), to include NFT creation and tradingOrdinals protocol has also been seeing a lot of traction. It allows users to attach digital content to BTC transactions.
DeFi exchanges and AI protocols remain on the watch list. Exchanges like GMX provide a lucrative liquidity service with great staking returns. The narrative about AI technology and development will mean AI protocols benefit from positive sentiment and speculation.
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