TA Tuesday: Macros and news again control the markets

Markets are, once again, being steered by macros and news.
 
Price action was slow last week, and the range was narrowed until Powell’s hawkish speech in Jackson Hole, where he made it clear that the Fed’s goal is to hit 2% inflation over the long term even if consumers and businesses will feel financial hardship.
 
Now let’s take a look ahead to major events coming up:
 
1. Wednesday, August 31st: EU CPI data (cons: 9% YoY, prev: 8.9% YoY)
 
2. Thursday, September 1st: manufacturing PMI in Germany and the UK, and initial jobless claims in the US (cons: 248,000, prev: 243,000)
 
3. Friday August 2nd: US unemployment rate (cons: 3.5%, prev: 3.5%) and non-farm payrolls (cons: 300k, prev: 528k)
 
If the employment rate remains strong, the Fed will push rates towards 4% without worrying too much about capital markets.
 
Based on Powell’s speech, it is likely that he will hold rates high for a long period of time to move the backend of the yield curve higher as well. So far, the term structure is still reversed with the spread between the 10-year yield and the 2-year yield of -0.3, suggesting an impending recession.
 
The energy crisis is almost here, and EU members are calling for market power to be used to set gas and electricity prices.
 
What they can do is the following:
 
1. Decouple electricity prices from the cost of gas.
 
2. Set a price cap.
 
The former is more complicated, but achievable; the latter would imply an increase in EU debt, thus pushing inflation higher. Meanwhile, British households were recently told that their electricity and gas bills will go up by 80% starting on October 1st.
 
Dutch TTF natural gas has skyrocketed as speculation and supply shortages drove demand. But it is likely to revert soon. The frontend has grown slightly (Dec22: €297.81 today vs. €165.03 30 days ago), while the backend finds consensus around €40 (Dec32: €42.27 today vs. €35.019 30 days ago).
 
I expect many players to play the term structure here by shorting the 2-year contract and buying the 4-year as the spread is juicy (€157) ahead of the EU meeting on September 9th.
 
(Graph 1: TTF futures curve)


 
On the crypto side:
 
– Total cryptocurrency market cap: $9.71 billion
 
– $BTC: $20,414 (-4.59% WoW)
 
– $ETH: $1,585 (-2.43% WoW)
 
– $SOL: $32.7 (-7.71% WoW)
 
The merge is almost here, and most traders seem well positioned as the futures basis and funding rates hit their lowest level since the beginning of the year. The ETH PoW token is priced around USD 20-30 as September futures are trading at a discount of $22 to spot. In the event of a non-bullish catalyst, I expect cryptocurrencies to hold current levels, and any volatility move is likely to be downside volatility.
 
The ETH support remains at $1,200 and the resistance is at $2,000.

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