Winter is coming

Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.

Another week has passed with macros simply refusing to leave investors and TA traders alone. BTC began the week grazing local $18,8k lows before surging to a brief high above $20,3k. However, with 2017’s highs now solidified as resistance, attempts at a sustained breakout have been aggressively hammered down. As a flurry of conflicting sentiment claims headlines across the globe, traders are anxious to see what an historically bullish October brings forth.

A new range in the making?

Macros

The week kicked off in seismic fashion, as massive leaks in the Nordstream pipeline were discovered by European authorities. Given the depth and density of the pipes, the current consensus is that this was an act of sabotage, although no parties have claimed credit for the attack. While fingers have been pointed at Russia, the logic is questionable – what would incentivise Putin’s regime to destroy the infrastructure that allows Russia to constrict gas supply to Europe at will?

October also signals the start of winter in the Northern Hemisphere, compounding the severity of the latest disruption as European gas reserves continue to dwindle. 

The ongoing crisis became more visceral on Thursday, as Germany recorded 10% inflation – a staggering number for the EU’s largest economy.

Meanwhile, the Bank of England’s shock announcement of a new mini-budget that cuts taxes for the wealthy and uncaps bonuses for bankers threw the nation’s prized Pound Sterling into turmoil, with GBP sinking to record lows just three cents above the dollar. 

The perplexing move in a climate of runaway inflation received heavy, well-earned, criticism, prompting the BOE to intervene in markets by taking on government debt in the form of bonds. Despite arguably being necessary to restore faith in the flailing British economy, this intervention has been interpreted by many participants as a move toward quantitative easing (QE) – the evasive pivot bulls have been clamoring for since the inflation crisis began. 

However, this couldn’t be further from the truth. The BOE undertaking extraordinary measures is significant, but in the grand scheme of a surging dollar, supply chain congestion, and escalation from both NATO and Russia, it’s simply far too early to hope for any meaningful loosening of monetary policy when the impact of reckless printing still remains unresolved. 

Forward focus

The ever-hawkish US Fed wasted no time in berating the BOE’s actions, once again driving home the need to aggressively raise rates at all costs to restore stability to the US economy. 

From a geopolitical standpoint, we are currently at possibly the largest inflection point since Russia first invaded Ukraine. With Russia announcing plans to annex four more occupied regions in war-torn Ukraine, NATO members seem to be preparing for a full-scale hot war. Both US President Joe Biden and European heads of state were firm in stating that such encroachments on Ukrainian territory would be met with severe and “extraordinary” reactions. 
In the past week, multiple NATO members have advised citizens residing in Russia to leave urgently – make of that what you will.
With October also being the most likely month for a Chinese offensive on Taiwan, one gets the feeling that we’re approaching the season finale of a year fraught with conflict and volatility.

If only volatility could heat homes…