Powell remarks were a non-event, stocks edge higher, dollar pares gains, NFIB, coinbase struggles

Whipsaw moves in stocks continue as investors fixate over central bank speak and as they await a pivotal inflation report later this week. ​ US stocks edged higher as we didn’t get a steady dose of hawkish speak from Fed Chair Powell and as expectations grew for disinflation trends to continue. Wall Street appears to be turning more bullish with stocks, but that might include a rebalancing of how much weight they put into tech stocks. ​ ​

Ten days into the New Year and some traders are already tossing their eurozone recession calls out the window. ​ Sentiment is on a rollercoaster ride and optimism is growing that Europe won’t have that bad of a rough patch as China reopening gains momentum and as we did not see the worst-case scenarios play out for natural gas prices. ​ Goldman Sachs notably revised their eurozone forecast for 2023, from -0.1% to +0.6%. ​

The World Bank also lowered its outlook for global growth from 3.0% to 1.7% and highlighted new shocks to trigger a global recession. ​

Powell

Fed Chair Powell’s speech at the symposium on central bank independence did not give an update on the economy or monetary policy. ​ He noted we are not, and will not be, a “climate policymaker.” Powell doesn’t want to compromise their independence by getting entrenched in the climate change debate. ​ Regarding independence and transparency, Powell gave the standard, “the case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations.”

FX

The dollar gave back gains after Fed Chair Powell’s speech was not a reiteration of his hawkish stance. ​ Dollar weakness could gain momentum again if more investors grow confident that the eurozone will avoid a recession. ​ Goldman Sachs changed their euro area forecasts since natural gas prices have tumbled and as China reopens. ​

NFIB
​Small business optimism slumped worst than expected and fell to the weakest levels since 2013. ​ Growth was obviously coming down, but this decline supports the idea that the economy is recession bound. ​ The Fed’s tightening cycle and potential commodity price volatility in both ways could complicate the disinflation trends in the middle of the year. ​

The headline index from the National Federation of Independent Business fell to 89.8, the lowest level since June and below the estimate of 91.5. Small business is weakening and they are still having trouble filling job vacancies, which could keep wage pressures elevated. ​ ​ ​

Crypto

Crypto traders were not surprised that Coinbase is having another round of layoffs. ​ The crypto exchange will let go about 950 people in hopes of reducing its operating expense by about 25% quarter-over-quarter. ​ CEO Armstrong said, “This is the first time we’ve seen a crypto cycle coincide with a broader economic downturn, but otherwise it is similar.” ​

Coinbase trading volumes have been crippled by both the FTX collapse and as Binance dominates Bitcoin and Ethereum trading. ​ There has been a steady improvement with the growth of the global crypto market cap this year and if that continues, that should be positive for Coinbase. Many traders are focusing on Altcoins which is what is needed to attract fresh money into this space. ​

Bitcoin and Ethereum got a boost after the dollar softened after a key appearance by Fed Chair Powell did not contain another round of hawkish Fed speak. ​

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