Taiwan Elections, the Global Economy, and a Crypto Head Fake

Top things to watch this week

The Economic Calendar:

MONDAY: U.S. Holiday – Dr. Martin Luther King, Jr. Day

TUESDAY: Empire State Manufacturing Index (7:30a CST), Christopher Waller Speaks (10:00a CST)

WEDNESDAY: MBA Mortgage Applications (6:00a CST), Retail Sales (7:30a CST), Import & Export Prices (7:30a CST), Michael Barr Speaks (8:00a CST), Michelle Bowman Speaks (8:00a CST), Industrial Production (8:15a CST), Business Inventories (9:00a CST), Housing Market Index (9:00a CST), John Willimas Speaks (2:00p CST)

THURSDAY: Raphael Bostick Speaks (6:30a CST), Housing Starts & Permits (7:30a CST), Jobless Claims (7:30a CST), Philly Fed Manufacturing Index (7:30a CST), EIA Natural Gas Report (9:30a CST), EIA Petroleum Status Report (10:00a CST)

FRIDAY: Existing Home Sales (9:00a CST), Consumer Sentiment (9:00a CST), Baker Hughes Rig Count (12:00p CST), Michael Barr Speaks (12:00p CST)

Key Events:

• Traders are watching crude oil futures and energy stocks after U.S. and British airstrikes in Houthi-controlled areas of Yemen.
• Taiwan elections and China’s response to the winner.
• Earnings reports led by financial companies begin to ramp up. 
• A busy week of FOMC speakers.
• Monitoring spot BTC ETF inflows, high volume and volatility should be expected.   

NATURAL GAS FUTURES

February futures are +41% in a month.

Weather forecasts keep getting colder. The nat gas report for Jan.19 is now forecast to show the largest inventory draw in 3 years.

The following week also predicts cold temperatures—the current futures price curve bottoms in April at $2.34. NG bottomed last April at 2.00, but it could easily go there again. That’s an 8% downside. Or it could easily go to $4.00 with some cold weather. That’s 70% upside.

When prices are this low in NG, traders should change their primary mental model from the odds of the next move’s direction to the potential sizes of the moves. That’s because the payoff asymmetry is now enormous.

STOCK INDEX FUTURES

The market bulls survived last week’s CPI and PPI release and financial sector corporate earnings.

Heading into the Q4 earnings season, consensus EPS estimates have been cut by 6% since September vs. a typical 4% reduction in estimates. However, earnings breadth, which is the total number of companies with positive EPS growth, is expected to improve for the third straight quarter.

The macro picture is a lot more troubling now than it was 12 months ago, and the year-end rally we saw in December likely pulled some potential gains from 2024 into 2023.

Going into 2024, the predominant view still leans bearish, as reflected by net futures positioning data on the S&P 500 that shows 65% of futures contracts are negative or short. However, negative positioning does not always translate to downside price action.

GEOPOLITICAL (TAIWAN & CHINA)

Taiwan goes to the polls over the weekend. If the winner is Lai Ching-te from the pro-sovereignty Democratic Progressive Party, there will be some kind of response from mainland China.

Looking at the worst case, this could turn into a military conflict between the U.S. and China.

Some analysts warn the Magnificent Seven tech stocks could be at risk. They’re in an extremely strong competitive position, but that doesn’t protect them from the possible consequences of the Taiwan election.

ECONOMY

Despite the U.S. running strong and major economies quelling inflation without sending the world into a recession, World Bank Chief Economist Indermit S. Gill claims the big-picture outlook remains “dismal.”

He projects that global GDP will expand at a sluggish 2.4% this year, below last year’s 2.6% and the 2010s annual average of 3.1%.

Sky-high borrowing costs and slowing global trade growth will constrain economic progress in low-income countries. The World Bank expects that anemic growth means that the UN’s goals of eradicating extreme poverty and slashing greenhouse gas emissions by almost half ahead of 2030 will likely go the way of most New Year’s resolutions.

It also predicts that by the end of 2024, 1-in-4 people in low-income countries will still be poorer than they were pre-pandemic.

CRYPTO “SELL THE NEWS”

It was a wild week in crypto volatility. It started on Tuesday when the SEC’s X account posted that the BTC spot ETFs had been given the green light, only for Chairman Gary Gensler to announce minutes later that the account was hacked.

On the hack, BTC rallied to just under $48,000. Once Gensler had corrected the SEC-compromised account, BTC saw its price fall to $44,500.

Then, late in Wednesday’s trading day, the SEC announced the approval of multiple BTC spot ETFs. The price drifted higher to $46500 and then closed the week lower to $42500.

The trading volume in the new ETFs was robust and encouraged acceptance of the new product.

All content published and distributed by Topstep LLC and its affiliates (collectively, the “Company”) should be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, Company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company, and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading, and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures, options, or forex. Past performance is not necessarily indicative of future results.

CFTC Rule 4.41 – Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.