What you need to know in markets this week: the future of Ethereum, what’s next for oil, and inflation is on the rise
Ethereum’s price soared by more than 25% this week. Yu Chun Christopher Wong/S3studio/Getty Images
CME Group will launch Ethereum futures this week and the price is at a record high.
The three major forecasters will publish their assessment of the outlook for oil demand in 2021.
Inflation is picking up - should investors be worried? Analysts say “no.”
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The army of Reddit day traders appears to be moving on, having pumped up everything from cryptocurrencies, to tiny biotech stocks in the last week, now that their firing up of GameStop, AMC, Nokia and co seems to have mostly run its course.
This coming week, we’ll be looking at the future of Ethereum, the pickup in consumer inflation and what the major forecasters are saying about the outlook for oil, now the price is trading around one-year highs.
The dawning of the age of Ethereum
Another week, another cryptocurrency at a record high. Earlier in the year, it was bitcoin, then XRP, then “meme token” DogeCoin, which got swept up in the Reddit-driven trading frenzy and given an extra shout-out on Twitter by Tesla CEO Elon Musk.
This time, it’s Ethereum grabbing the headlines. The second-largest cryptocurrency by market value after bitcoin has seen the price soar by more than 25% this week to record highs above $1,600. It’s not just down to the Wall Street Bets guys, either. Exchange operator CME group will launch its first Ethereum futures contract on February 8, another offering in the crypto market alongside its bitcoin futures and options.
At the same time, crypto fund manager Grayscale reopened its Grayscale Ethereum Trust, after having closed the fund to new investors in late December for “administrative purposes.” In this week alone, the trust has seen inflows of nearly 100,000 ETH. Grayscale now manages nearly $5 billion in Ethereum.
JPMorgan estimates that initial volumes in Ethereum futures are likely to be low, much like bitcoin in the early days, but this will change quickly.
“The listing of CME bitcoin futures coincided with all-time highs in bitcoin prices, and researchers at the San Francisco Fed suggested that, by providing a market where bearish positions could be more readily expressed, the listing of these futures contributed to the reversal of bitcoin price dynamics,” JPMorgan analysts led by Nikolaos Panigirtzoglou said in an note last week.
“In a similar vein, it may be that this week’s listing of ethereum futures contracts will be followed by negative price dynamics by enabling some holders of physical ethereum to hedge their exposures,” they said.
Read more:Investors are flocking to trade Dogecoin and other hot digital tokens on Voyager, a platform with no Robinhood-style restrictions. Its CEO says Bitcoin will hit $100,000 this year - and shares 3 other cryptocurrencies to watch.
Oil - full speed ahead
The oil price hit its highest in a year this past week, leaving Brent crude futures trading just shy of $60 a barrel. The catalyst for the rally wasn’t the Reddit crowd, but ongoing evidence of the rollout of COVID-19 vaccines in the UK and US in particular that many hope will pave the way out of lockdowns and into more normal activity.
The futures market shows traders and fund managers are more optimistic about the prospects for oil demand than at any time in the last year. The most recent data on oil inventories shows stocks of unused crude are at their lowest since last April, when a frenzied scramble for storage led to the WTI crude futures price dropping to -$40 a barrel.
This coming week, the three major forecasters will release their most recent assessments of demand and their estimates of demand growth. OPEC, the International Energy Agency and the US Energy Information Administration will release their regular monthly reports.
The EIA, which issues longer-term demand forecasts, expects to see the global crude market tilt into a modest deficit over 2021 as a whole, with consumption forecast at 97.77 million barrels per day, against supply of 97.13 million barrels per day. The IEA expects demand to grow by 5.5 million bpd, following a record contraction of almost 9 million bpd last year, while OPEC is looking for a more optimistic 5.9 million bpd.
OPEC and several partner countries continue to restrict daily oil production to keep a safety net under the price. Investment bank UBS says the group will remain “in full control of the oil market” this year and this, together with the advent of an effective vaccine, means the price of a barrel of crude will continue to rise.
“Given that we target Brent at $63 a barrel in 2H21, we continue to advise investors with a high-risk tolerance to be long Brent or to sell its downside price risks,” UBS strategist Giovanni Staunovo said in a note last week.
Inflation and, more to the point, the market’s expectations for inflation, is creeping up. A combination of increases in the price of things like oil and food, as well as vast amounts of cash flowing through the financial system are slowly translating into a pickup in consumer inflation. But this isn’t necessarily a bad thing, analysts say.
The oil price is at its highest in a year, while food prices - as measured by the United Nations' Food and Agriculture Organization - rose by more than 4% in January to hit their highest since mid-2014. Central banks generally use inflation measures that strip out food and energy prices when setting monetary policy, but that hasn’t stopped investors from betting on more increases to come.
Pumping up inflation
This coming week brings inflation readings from the US and China, as well as Brazil, India, and Mexico among others. In the US, consumer inflation is forecast to have risen by 1.5% in January, at the same rate as in December. The bond market shows investors believe consumer and producer price pressures are going to continue rising.
Analysts at DataTrek said in a note last week US five-year Treasury Inflation-Protected Securities (TIPS) have done “a reasonable job” of forecasting the stable rate of inflation seen in both producer and consumer prices over the last decade.
“The most recent move higher for 5-year inflation expectations (2.18%, the highest since 2013) is therefore significant,” DataTrek analyst Nicholas Colas said.
“Importantly, TIPS are NOT saying rampant inflation is just around the bend. The 2.2% forecast embedded in those bond prices is simply a validation of the idea that the US will see a reasonable and lasting economic recovery in the years ahead,” he added.
The so-called breakeven inflation rate - derived by subtracting the yield of the five-year TIP from that of the nominal five-year Treasury note - has risen to 2.25% this week, its highest in almost eight years, having doubled in the space of eight months.
“While the chatter around the inflation outlook is elevated now, we would expect it to become even more intense as we approach mid-year if our CPI forecasts are right,” strategists Ralph Axel and Olivia Lima at Bank of America wrote last week. They forecast a consumer price inflation (CPI) rate of 3.4% by May, which might prompt investors to revise their view on when the Federal Reserve may begin to tighten monetary policy - but they add a caveat.
“History shows that markets tend to overreact to positive developments and price in hikes long before the Fed actually delivers,” they said.
Read more: Morgan Stanley says inflation is heating up and these are the 12 undervalued stocks in a ‘sweet spot’ that you need to own thanks to their pricing power
Chart of the week - GameStop
The army of Reddit retail traders is still active, but it would appear most have booked profits on their positions in the likes of GameStop and AMC - GameStop is now worth just over half of what it was at the height of the Wall Street Bets frenzy one week ago.
Daily chart of GameStop shares TradingView
Earnings for the week ahead
2/08 Softbank
2/09 Cisco
2/09 TOTAL
2/09 Twitter
2/10 A.P. Moeller - Maersk
2/10 Coca-Cola
2/10 Commonwealth Bank Australia
2/10 Uber
2/10 Vestas Wind Systems
2/11 AstraZeneca
2/11 Walt Disney
2/11 L’Oréal
2/11 PepsiCo
Ethereum, Litecoin, and Ripple’s XRP – Daily Tech Analysis – February 8th, 2021
It was a mixed start to the day. Ethereum rose to an early morning intraday high $1,695.38 before hitting reverse.
Falling short of the first major resistance level at $1,735, Ethereum slid to a late afternoon intraday low $1,493.28.
Ethereum fell through the first major support level at $1,636 and the second major support level at $1,592.
Finding support at the third major support level at $1,494, Ethereum broke back through to $1,600 levels.
The first major support level at $1,636 pinned Ethereum back late in the day.
At the time of writing, Ethereum was up by 0.75% to $1,627.46. A mixed start to the day saw Ethereum fall to an early morning low $1,601.14 before rising to a high $1,627.46.
Ethereum left the major support and resistance levels untested early on.
Bitcoin and Ethereum Hold Key Support, Altcoins Surge
Bitcoin price started a downside correction from well above USD 40,000. BTC declined below the USD 39,200 support level, but it was well bid above USD 37,500. It is currently (05:00 UTC) trading above USD 38,000, but it is facing hurdles near USD 39,200.
Similarly, ethereum corrected more than USD 200 from the USD 1,760 high, but it found a strong support near USD 1,500. Besides, most other major altcoins are showing positive signs. XRP/USD is stable above USD 0.400, but it is facing resistance near USD 0.440.
Total market capitalization
Bitcoin price
After a downside correction, bitcoin price found support near USD 37,500. BTC recovered above USD 38,000 and it is showing a few positive signs. The price is now trading well above USD 38,000, with an immediate resistance near the USD 39,200 level. A clear break above the USD 39,200 zone could open the doors for a fresh test of USD 40,000.
An initial support is near the USD 38,000 level. The first major support sits at USD 37,500, below which the price might test the main weekly support at USD 35,500.
Ethereum price
Ethereum price declined sharply towards the USD 1,500 support zone. ETH recovered from USD 1,500 and it is now trading above USD 1,600. If the bulls remain active, the price could surge towards the USD 1,680 and USD 1,700. Any more gains could lead the price towards the USD 1,750 level.
If there is another decline, the USD 1,550 is a decent support. The main support is now forming near the USD 1,500 level, below which the price might decline heavily.
Bitcoin cash, litecoin and XRP price
Bitcoin cash price is stable above USD 440 and it is consolidating in a range. BCH is facing a minor hurdle near USD 450, above which the price might accelerate higher. The next major resistance sits at USD 465, above which it could start a strong rally towards the USD 500 level.
Litecoin (LTC) is stable near USD 150 and it is showing a few positive signs. If LTC gains pace above USD 155, it could revisit the USD 165 level. Any more upsides could set the pace for a move towards the USD 188 and USD 192 levels. On the downside, the USD 142 and USD 140 levels are strong support zones.
XRP price settled above the USD 0.400 and USD 0.420 levels. The price is currently consolidating and it seems like it could attempt another upside break above USD 0.440 and USD 0.450. A close above USD 0.450 may possibly spark a strong increase in the coming sessions.
Other altcoins market today
Many altcoins climbed over 15%, including AVAX, EGLD, MATIC, LUNA, ATOM, NEAR, DOGE, XEM, GRT, ZRX, SOL, and RUNE. Out of these, AVAX rallied over 35% and it broke the USD 25.00 resistance.
Overall, bitcoin price is showing positive signs above USD 38,000 and USD 37,500. If BTC clears the USD 39,200 and USD 40,000 resistance levels, the bulls may possibly aim for a new all-time in the coming days.
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