stock market crash

Stock market crash – and crypto watchers will be wondering, will bitcoin crash again? Equities are putting in their worst performance since the start of the pandemic in early 2020.

And with the strong positive correlation of crypto to stocks, in particular tech stocks, where the stock markets go, bitcoin tends to follow.

Crypto’s correlation to the SPX was at a 17-month high in Q1 2022. Such is the level of lock-step movement of the two asset classes, some analysts are looking at bitcoin for signals as to when the bottom for stocks might be in.

Lori Calvasina at RBC Capital Markets says that bitcoin has been a leading indicator but she thinks it is less so right now.

“It was really giving us a sign at the peak. It’s not really telling us too much now, but there, of course, has been severe declines there,” she said on Bloomberg TV. “I will tell you, equities don’t tend to go down as much as crypto, so it does end up being sort of a safer asset.”

Bitcoin’s correlation with equities has increased as the same retail investors who hold bitcoin increasingly tended to also hold stocks such as Tesla and other previous tech high fliers.

Bitcoin is down 3% as it clings to the $29,000 level and Ethereum off 5.5%, back below $2k at $1,933.

stock market crash bitcoin price chart

End of the buy the dip for stocks and crypto?

The buy-the-dip crowd in equities and cryptocurrency who were lulled into a false sense of security by the recent bear rally at the end of last week and earlier this week, will be having second thoughts about that strategy.

It has finally dawned on the market that discretionary spending by consumers is being hugely impacted by rising inflation. If that wasn’t already obvious, results from US retailer Target made it clear.

The S&P 500 fell 4.04%, the Nasdaq composite 4.75% and Dow more than 1,000 points (3.57%) to 31,490k.

US futures at the time of writing are signalling more losses at the US open, with the S&P down 1.5% and the Nasdaq 1.6%.

The Stoxx Europe Index is down 2%. The UK’s FTSE 100 has lost 2.5% as the losses deepen there and Germany’s Dax is off 2.25%.

As usual, Big Tech stocks took a battering. Apple stock was down 5.6% to $140, and is down 1% in premarket. Tesla lost 6.8% of is value and is down a further 2.4% in premarket, printing $692, 50% below its all time high of $1,243. Amazon stock gave up 7% to trade at $2,142.

In Asia, Hong Kong’s Hang Seng fell 2.5% and South Korea’s KOPSI lost 1.2%, while Shanghai was up 0.36%.

Cryptoassets are a highly volatile unregulated investment product.

Stagflation “unavoidable” in US says El-Erian

Now the much feared return on stagflation looks like being “unavoidable”. That is the view of respected economist Mohamed El-Erian, when he told Bloomberg that the US would not be able to escape stagflation’s clutches.

He blames the US Federal Reserve for moving too slow against inflation and for sticking with the “transitory” inflation line for too long.

Although some central bankers are choosing to lay the blame for inflation at the door of the Ukraine war, in truth the rot set in long before then. Supply chain disruption as a result of the pandemic set the ball rolling against the back drop of expansionary policies on both the fiscal and monetary policy sides.

It is the ‘R’ word – recession – that is now being rapidly priced in by the equity markets as a real possibility.

Stock Markets face a wall of worry and doubts on central banks’ credibility

Susannah Streeter, senior investment and markets analyst at top UK broker Hargreaves Lansdown commented this morning: “A red wall of worry has built up across financial markets with investors increasingly nervous that economies are set to career into recession.”

A real worry for markets is the difficulty that central banks face in trying to tamp down on inflation without triggering or deepening a recession.

Also, the days of the ‘Fed Put’, where central banks effectively underwrote risk assets and have saved the equity market from previous plunges, are over.

Indeed, the credibility of central banks is being challenged like never before, or at least since the financial crisis of 2008, with inflation meant to be their core concern, but in the advanced economies it is way above typical target rates of 2%.

UK faces possible “death spiral” as inflation beds in and growth slows

The UK economy is in a particularly precarious position. Like the US it has a very tight labour market and high inflation but like Europe it has relatively sluggish growth.

Add to that the falling value of the pound against the dollar which makes imports more expensive, it is not a pretty picture. CPI Inflation is running hot at 9% in the UK and RPI inflation at 11%.

As prices rise, the expectation can become embedded among forms and workers of the need to respond with higher goods and services prices and wage expectations accordingly.

Sterling continues to trade at a two-year low against the dollar, at $1.236, although the pound is up 0.2% today as traders now begin to position for possibly more aggressive moves in the interest rates front than hitherto has been the case by the Bank of England.

Although consumers are definitely pulling back, as Streeter notes people are being more focused about what they spend money on

“With consumer spending power expected to be eroded further through interest rate rises, the worry is that Target’s pain is a precursor for yet more struggles to come for retailers.

“A trend also seems to be emerging of people wanting to save their dollars to spend on experiences like holidays rather than homewares with luggage at Target selling fast.”

ING says US recession not likely, but may underestimate impact of global slowdown

However ING chief international economist James Knightley doesn’t believe, at least in the case of the US, that a recession is likely.

He says growth is rebounding strongly in the current quarter. Wages and employment are rising nicely and households have built up significant savings buffers during the pandemic.

Nevertheless, the US Federal Reserve is belatedly slamming on the breaks as inflation hits 8%, while unemployment falls below 4%. But Knightley looking for an annualised growth rate of 3%-plus this quarter.

But whether US growth can be sustained when the rest of the world is slowing down, particular China, where the zero Covid policy is shuttering factories, is perhaps being underestimated by Knightley.

Rush into safe haven, crypto drops again – but some green candles

The fallout in stocks is hitting other markets this morning. Bonds prices are up and yields down as investors look to move into safe havens.

The US 10-year Treasury yield is down a nudge, by 2 basis points at 2.83% .

Gold, another safe haven asset, is up 0.5% at $1,825 an ounce.

As mentioned above, crypto markets, as has been the case for some time, are falling in unison with equity markets. But it is not all red.

One notable exception to the blood on the screen i crypto is Lucky Block, the crypto games platform whose jackpot price draw product launches this month. Its LBLOCK token jumped to $0.00145, up 10% today and 60% this week.

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