This Week's Top Headlines

i) Bitcoin is the new stablecoin. The world's largest cryptocurrency continues to hover in a tight range between $16,500 and $17,000.

ii) The Federal Reserve releases the minutes for its December meeting. The committee sees interest rates peaking higher for "some time" ahead.

iii) December's inflation data, scheduled to be released on Jan 12, will be the next market mover. The current employment situation in the US shows job growth stronger than expected, but wage growth is slowing.

iv) China's Covid cases hit 37 million a day. Deaths are piling up, as a UK research firm estimates over 9,000 deaths daily.

Scroll down to read the details.

Shoutout to all our current Gatherer and Learner members! Thank you for your support.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid.

✅ No commitments.

✅ Cancel anytime.

✅ Zero ads, zero shills.

Bitcoin is the new stablecoin.

The cryptocurrency market has been on a lull recently, with Bitcoin trading in a tight range between $16,500 and $17,000 for almost 8 weeks. In previous issues, I stated that I expected this sideways movement to continue through the first week of January because there were no catalysts to cause Bitcoin to fluctuate.

Going into the second week, however, Bitcoin should see some volatility, as the latest inflation data from the US is scheduled to be released on Thursday, Jan 12 (more will be discussed below). Depending on the day you are reading this newsletter, Bitcoin may have already lost its stablecoin status.

The Fed's recently released meeting minutes show rates peaking higher for longer.

The Federal Reserve meets eight times a year to adjust interest rates and discuss the state of the economy. The minutes of each meeting are typically released a few weeks after each meeting, which will give investors a clearer picture of the Fed's goals.

According to the minutes released on Wednesday from the Fed's December meeting, the committee remains steadfast in its fight against inflation and expects higher interest rates to stay until more progress is made.

This is similar to the tone set by Jerome Powell during the press conference in December. The minutes also indicated that Fed officials are favouring a more restrictive stance until inflation shows a sustained downward path to 2 percent. Several participants stressed that "historical experience cautioned against prematurely loosening monetary policy."

In simple terms, this means that no FOMC members are expecting rate cuts or a pivot in 2023, despite the market currently pricing it in.

The Week Ahead: Watch out for the latest inflation data

We should know by now why the Federal Reserve is aggressively raising interest rates: to curb inflation and bring price hikes back down to the target goal of 2%.

Inflation is gradually cooling.

November's figure, released on Dec 13, came in at 7.1%, below expectations of 7.3% and significantly lower than the peak of 9.1%. Jerome Powell noted the welcome reduction in price hikes during his speech in December. However, he mentioned that "it will take substantially more evidence to have confidence that inflation is on a sustained downward path."

Despite this, investors are still hoping for a Fed pivot and are not convinced that rates will have to be raised into restrictive territory.

The upcoming CPI data scheduled for Jan 12 is crucial as it will determine the Fed's future pace of rate hikes. After declining for 3 consecutive months from the high of 9.1%, America’s inflation could drop below 7% - the lowest figure in 13 months.

Should inflation come out lower than expected, markets will see a strong rally and Bitcoin could easily break $17,500. Meanwhile, the Federal Reserve will probably take another step down on rate hikes during the upcoming FOMC meeting on Feb 1. Instead of 50 basis points, the Fed may go with 25 basis points, which is what the market is largely pricing in right now.

Another factor that influences the Fed's decision on rate hikes is the unemployment rate. It is thought to be inversely correlated with inflation. If the unemployment rate is high, it means that fewer people are working. A declining workforce lowers inflation as fewer people are being paid.

I believe that inflation should fall below 7%, following the recent downtrend. Though the recent unemployment rate in the US came out better than expected, wage growth is slowing - an indication that inflation pressures could be weakening. The average hourly earnings rose 0.3% for the month and increased 4.6% from a year ago. Expectations were at 0.4% and 5% respectively.

Mike Loewengart, the head of model portfolio construction for Morgan Stanley's Global Investmet Office, said "there's some indication that things are moving in the right direction. We're seeing the impact of the blunt tools of monetary policy take effect."

Though it is encouraging to see a moderation in wages, Mike thinks that it will not sway the Fed from additional rate hikes going forward.

China is in deep trouble, and the rest of the world may be in its crossfire.

Ever since China has decided to completely open up its economy due to the violent protests in December, Covid cases have exploded, and Covid-related deaths continue to ravage the nation.

According to the government's top health official, daily cases may have already hit 37 million. A research firm in the UK estimates that over 9,000 people are dying every day from the disease, despite the official reports released by the National Health Commission accounting for only a handful of deaths.

What's worse is that the government announced that international borders would be reopened on January 8, which, if you are reading this on Sunday, all hell has already broken loose. Malaysia must be prepared for a surge in Covid cases from China. The Malaysian Inbound Tourism Association (MITA) expects 1 million Chinese tourists this year.

I wrote a detailed thread about this matter about a week ago. You may read it here.

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 10.30 AM on 8th January 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!