Hello there,

A magical Monday to you as markets remain manic thanks to a slew of macroeconomic malaise making matters challenging for even the most bullish investors.

In brief (TL:DR)

• U.S. stocks closed lower Friday with the Dow Jones Industrial Average (-0.30%) , S&P 500 (-0.57%) and the Nasdaq Composite (-1.40%) all continuing to add to losses.

• Asian stocks fell anew Monday, squeezed by high inflation, monetary tightening and the prospect of a global economic slowdown.

• Benchmark U.S. 10-year Treasury yields advanced more than two basis points to 3.15% (yields rise when bond prices fall) in a broad selloff that is devoid of havens.

• The dollar advanced in a sign of investor wariness and a rush to cash.

• Oil slipped with June 2022 contracts for WTI Crude Oil (Nymex) (-1.22%) at US$108.43.

• Gold edged lower with June 2022 contracts for Gold (Comex) (-0.25%) at US$1,878.00 against a strenghthening dollar.

• Bitcoin (-2.94%) continued to fall to US$33,780 (at the time of writing) as bullish liquidations continue in earnest and the lower bound of Bitcoin's trading channel comes under pressure.

In today's issue...

1. What to make of the U.S. jobs report?

2. Day Trading Army Down but Not Out

3. Keep Calm and Crypto?

Market Overview

Volatility remains the watchword in global markets on growth, inflation and war risks.

U.S. Federal Reserve officials have been defending the U.S. central bank against arguments that it’s fallen well behind in the fight against inflation.

Later Monday, Russian President Vladimir Putin is due to speak at Russia’s May 9 Victory Day parade, which marks the anniversary of Nazi Germany’s surrender in 1945 and he may indicate his next steps for the Ukraine invasion.

In China, data are likely to show the economic toll of Covid lockdowns, including the slowest export growth since 2020 and weak imports.

Asian markets were lower Monday with Tokyo's Nikkei 225 (-2.05%), Seoul's Kospi Index (0.86%), Hong Kong's Hang Seng Index (-3.81%) and Sydney’s ASX 200 (-1.45%) were all down.

1. What to make of the U.S. jobs report?

• A U.S. Labor Department report showed on Friday that nonfarm payrolls rose 428,000, well above economist estimates of 380,000, while unemployment held at 3.6% versus an expected fall to 3.5%.

• Most American workers are still not seeing their incomes keep up with inflation and Friday’s jobs report showed that while earnings were up 5.5% from a year earlier, inflation is a blazing 8.5%.

“It was the best of times, it was the worst of times.”

– Charles Dickens, A Tale of Two Cities

As if the U.S. Federal Reserve didn’t have a hard enough time dealing with the fastest pace of inflation in over four decades, a mixed jobs report has added to the complexity of being a modern-day policymaker.

While U.S. hiring advanced at a robust pace in April, a smaller labor force has increased pressure on employers to boost wages.

A U.S. Labor Department report showed on Friday that nonfarm payrolls rose 428,000, well above economist estimates of 380,000, while unemployment held at 3.6% versus an expected fall to 3.5%.

Average hourly wages rose, but the pace of increases moderated.

Most American workers are still not seeing their incomes keep up with inflation and Friday’s jobs report showed that while earnings were up 5.5% from a year earlier, inflation is a blazing 8.5%.

Complicating the job for the Fed is that it’s hard to tell if the wage increases are starting to plateau or they are just taking a breather before rallying even more.

The Fed’s policy meeting concluded before Friday’s jobs report, but at that meeting, Chairman Jerome Powell expressed a strong desire by the central bank to reign in wage growth and inflation, without slowing the economy or sparking off a recession which would lead to rising unemployment.

But Friday’s jobs report provided anything but clarity as the Fed attempts a “Goldilocks” soft landing for the U.S. economy as it withdraws pandemic-era stimulus.

Nonetheless, the Fed may still catch a break – with the cost of living remaining elevated, more Americans may be forced back into the labor force, increasing the labor participation rate, and helping to put a cap on wages to avoid a wage-price spiral.

Savings rate is still high in the U.S. which should act as a buffer on consumption and overall, may facilitate the return to a more normal monetary policy, not so tight as to tip the economy over into a recession but perhaps not so loose to stoke the market’s most speculative excesses.

2. Day Trading Army Down but Not Out

• With global central banks in a race to the bottom by hiking interest rates to combat the fastest pace of inflation in four decades, a bear market in speculative companies has seen day traders against the ropes.

• But with the institutional selling outgunning retail appetite to absorb those sales, mom-and-pop investors will be put through a real test of nerves to hold through this period.

Without years of experience or fancy reams of research, the zero-fee trading revolution ushered into existence by the likes of SoFi (-5.71%) and Robinhood Markets (-4.62%) created an army of day traders that have since seen their returns, returned to the market.

Akin to the “Occupy Wall Street,” movement, a decentralized attempt to rage against latent social inequalities that petered out because of a lack of focus, there are some who suggest the grassroots-led meme stock frenzy may be petering out as well.

One estimate by Morgan Stanley (-0.67%) suggests that day traders who were buoyed by the meme stock frenzy are nursing losses this year which are far deeper than the market, and have all but returned most of their gains made during the height of buying frenzy.

With global central banks in a race to the bottom by hiking interest rates to combat the fastest pace of inflation in four decades, a bear market in speculative companies has seen day traders against the ropes.

But could it be premature to count the meme stock crowd out altogether?

To be sure, the death of retail traders has been prematurely pronounced on multiple occasions, only to have comeback stronger and mom-and-pop investors have somehow managed to bring their favorite meme stocks back from the dead over and over again.

Retail favorites like AMC Entertainment (-6.33%) are down almost 80% from its June 2021 peak, while overpriced exercise bike Peloton Interactive (-7.70%) is 90% off its record all-time-high.

Unlike Asian markets, retail traders have always been in the minority on Wall Street, but the meme stock craze saw them make up as much as one quarter of all activity at its peak.

That number has since fallen to below a fifth and although professional investors have been slashing equity exposure, the day trading army has held relatively firm, at least in terms of positioning, if not necessarily flow.

According to data from Morgan Stanley, retail traders snapped up some US$14 billion in stocks last month, the second-lowest uptake in any month since late 2020, while in the options market, bearish puts (the option to sell at a certain price) have overtaken bullish calls.

A quick turnaround is unlikely, given that more immediate cost-of-living concerns have already eaten into the amount of excess disposable income that retail investors have remaining to plow into stocks.

But with the institutional selling outgunning retail appetite to absorb those sales, mom-and-pop investors will be put through a real test of nerves to hold through this period.

3. Keep Calm and Crypto?

• Sliding for the seventh session in eight days, the weekends are particularly brutal for cryptocurrencies, given diminished volumes can see sharp advances as easily as steep declines.

• Not helping Bitcoin has been its most recent strong correlation with other risk assets, including the tech-heavy Nasdaq 100 and S&P 500.

Given how crypto-fever is a relatively new phenomenon among most investors, the continued decline of benchmark cryptocurrencies like Bitcoin would no doubt have rattled the nerves of those who may be watching their investments at the highs decline by well over 50%.

Sliding for the seventh session in eight days, the weekends are particularly brutal for cryptocurrencies, given diminished volumes can see sharp advances as easily as steep declines.

With Bitcoin now below US$34,000 (at the time of writing), there are growing fears by chart watchers that an unfavorable macro environment could see the benchmark cryptocurrency plunge to below US$32,000 and below the trading range it’s so far managed to keep this year.

And if Bitcoin keeps coming down, there are some technical chart watchers who suggest it could yet test US$28,000 and then US$20,000.

Bitcoin’s trading channel has widened recently to between US$33,000 to US$48,000 – the last time it touched US$32,000 was in July 2021, when a massive deleveraging saw Bitcoin correct sharply.

But after that pullback, Bitcoin went higher on a relentless rally that peaked in November, which saw its price soar to as high as US$69,000.

Since last November however, Bitcoin has been on a gradual decline, marked by brief rallies.

Even the most bullish Bitcoin investors are being whipsawed as some US$475 million in long Bitcoin positions were liquidated over a 24-hour period last week, according to data from Coinglass.

Technical traders will be watching Bitcoin to keep above US$32,000, a key level of support that would keep the cryptocurrency within the trading range, outside of which, a capitulation to the downside could be in the offing.

Not helping Bitcoin has been its most recent strong correlation with other risk assets, including the tech-heavy Nasdaq 100 and S&P 500.

As stocks have been roiled for much of this year, on the back of macro headwinds, Bitcoin and cryptocurrencies have been swept along with them.