Bitcoin volatility in the spotlight

Bitcoin continues to capture the attention of many. Given the current price action of the cryptocurrency, headlines are easy to come by, and yesterday was no different. The virtual currency gained over 15% in the early part of the day, charging through $10,000 to a fresh all time high of over $11,000, before plummeting as much as 21%, with incredible speed to $9009. 

Whilst traditional assets are experiencing historically low levels of volatility, the whipsaw action of the bitcoin is drawing the attention of traditional traders. Meanwhile existing traders and new comers are increasingly interested in fear of missing out.  

Bubble or no bubble, there is nothing to say the price can’t go up further. With more interest from professionals, from the mainstream, and Nasdaq also announcing plans to launch bitcoin futures, the virtual currency’s legitimacy has grown exponentially which is reflected in its price increase. Bitcoin has rallied over 1100% since the start of the year and 100% in the last two weeks. 

But with these size of price increases, a hefty downside should also be expected. 

Is the FAANG party over? 

US markets saw a mixed session. The Dow once again closed at a new record high, whilst the Nasdaq experienced its worst session in three months, as the FAANG’s -Facebook, Apple, Amazon, Netflix and Google parent Alphabet, weighed on the tech heavy index. 

These stocks have been on fire for most of 2017, gaining between 30% - 52% since the beginning of the year (to mid Nov). The tech heavy Nasdaq has gained for the past nine consecutive weeks, making it the longest weekly winning streak since 2012.But this rally is now old hat and we are starting to see a rotation out of the tech stocks and into financials, on quite a dramatic level. 

The closely watched Philly Semi-Conductor Index plummeted 4.3%, its biggest daily percentage decline since December 1. Meanwhile the S&P financial sector has rallied hard over the past two sessions jumping over 4%. This group rotation is happening in response to the US tax reforms progress. The sectors which are expected to benefit the most, are the ones we are seeing rallying. 

The large tech companies were generally playing the system, so had low tax rates and they therefore stand to gain the least from the reform. Worse still, current loopholes may even be closed. 

Will Inflation data solve the Fed’s inflation mystery? Not likely today. 

The dollar weakened through the course of the previous session, despite news that the US economy was growing at an impressive 3.3% and despite comments from Fed Chair Yellen that boosted optimism that US economic growth was poised to accelerate. 

Dollar traders will now look ahead to PCE figures, the Fed’s preferred measure of inflation. Inflation is only expected to increase at 1.3%, which will continue to leave the Fed baffled over the “inflation mystery”. It could also cause investors to notch down interest rate hike expectations for next year, even if Yellen repeated that gradual rate rises would continue. 

Oil: Another jittery session ahead of the Vienna Meeting 

Wednesday saw oil slip for the third consecutive session ahead of the OPEC meeting in Vienna today. 

Doubts have been growing across the week as to whether the group will be able to deliver an extension to the current supply curb. Russia could block a unified deal extending the cuts until the end of 2018. The markets are realizing that this is by no means a done deal with increased jitters reflected in the falling share price. The black stuff will be in the spotlight with headlines out of Vienna driving price action. 

Pound giddy with excitement but there is still a long road to travel to Brexit 

The pound soared to a two-week high versus the euro and a fresh two month high versus the dollar, as markets continued to digest news that the UK was bowing to the EU’s demands over the Brexit Bill. Yet while pound traders are giddy with joy over the clearance of one of the biggest sticking points in Brexit negotiations, the news hasn’t pleased everyone. Brexit hardliners are already complaining about their unease with such large sums and continued payment over many years.  

UK Prime Minister is not in a strong political position after so many blunders this year. In order for this deal to be voted through, she needs to ensure that a good trade deal is established. Failure to do so, could result in the Brexit Deal being voted down by her own party. So, whilst pound bulls have had reason to get behind sterling, there is still along risky route ahead, which could contain many pitfalls for the pound.