3 or 4 Rate Hikes?

I'll make this short and sweet. 

In a late-afternoon rally yesterday, U.S. equities recovered as bargain hunters began snapping up technology favorites such as Tesla and Nvidia. Once BTC bottomed out, markets started to calm down, with many suggesting that we already were in oversold territory.

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We still have a lot to get through, so we aren't out of the woods yet. However, the one significant factor going into the FOMC looks to be whether hawkish rhetoric from the Fed suggests we get 3 or 4 rate hikes this year. The market-implied number of Fed Fund hikes by Dec 2022 is meaningfully below 4 for the first time since Jan. 14th. However, it's still very volatile. Players will keenly watch whether we tick back higher or remain below on Wednesday at 2 pm. 

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Within crypto, the most significant risk I'm watching is MakerDAO. Per MakerDAO forum, there is $600M worth of debt from the second-largest vault owner, 7-siblings, at risk of liquidation from $1,900 levels. Notice how Nexo has topped up collateral and would not be at risk of liquidation until we get to $1,400 ETH levels. 

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These liquidations will be done in chunks of 65M (current limit for MakerDAO ETH auctions) and would presumably take about 10 hours, assuming 10% slippage each time. It's highly likely the user would react before the end, but it could still be a very severe liquidation event that keepers and AMMs may not be able to handle.

The critical levels in ETH are:

  • $1,900 with $600M to be liquidated (7-siblings).

  • $1,400 with $1.7B to be liquidated (Nexo & others).

Good luck out there.

Market cheat sheet via Goldman:

Monday, January 24

  • 09:45 AM Markit Flash US manufacturing PMI, January preliminary (Bloomberg consensus 56.7, last 57.7)

  • Markit Flash US services PMI, January preliminary (consensus 54.8, last 57.6)

Tuesday, January 25

  • 09:00 AM FHFA house price index, November (consensus 1.1%, last 1.1%)

  • 09:00 AM S&P/Case-Shiller 20-city home price index, November (GS +0.9%, consensus +0.97%, last +0.92%); We estimate the S&P/Case-Shiller 20-city home price index rose by 0.9% in November, following a 0.92% increase in October.

  • 10:00 AM Conference Board consumer confidence, January (GS 112.5, consensus 111.8, last 115.8); We estimate that the Conference Board consumer confidence index decreased by 3.3pt to 112.5 in January, reflecting negative signals from other confidence measures.

  • 10:00 AM Richmond Fed manufacturing index, January (consensus 14, last 16)

Wednesday, January 26

  • 08:30 AM Advance goods trade balance, December (GS -$96.0bn, consensus -$96.0bn, last -$98.0bn): We estimate that the goods trade deficit decreased by $2.0bn to $96.0 in December compared to the final November report, reflecting an increase in imports.

  • 08:30 AM Wholesale inventories, December preliminary (consensus 1.4%, last 1.4%): Retail inventories, December (consensus 1.5%, last 2.0%)

  • 10:00 AM New home sales, December (GS +2.0%, consensus +2.8%, last +12.4%): We estimate that new home sales increased by 2.0% in December, reflecting softer housing permits, starts, and mortgage applications relative to November.

  • 02:00 PM FOMC statement, January 25-26 meeting: As discussed in our FOMC preview, we expect that the FOMC will use this meeting to hint at a March liftoff and begin formulating a plan for balance sheet reduction. We expect the FOMC to raise interest rates four times this year starting in March and to announce the start of balance sheet reduction in July.

Thursday, January 27

  • 08:30 AM Initial jobless claims, week ended January 22 (GS 295k, consensus 260k, last 286k); Continuing jobless claims, week ended January 15 (consensus 1,650k, last 1,635k): We estimate initial jobless claims increased to 295k in the week ended January 22.

  • 08:30 AM GDP, Q4 advance (GS +6.5%, consensus, +5.3%, last +2.3%); Personal consumption, Q4 advance (GS +3.2%, consensus +2.9%, last +2.0%): We estimate GDP growth picked up to +6½% annualized in the advance reading for Q4, following +2.3% in Q3. Our forecast reflects firming consumption growth (to +3.2%), with Omicron reducing activity only very late in the quarter. We expect lackluster growth in business structures and equipment investment—but expect a strong gain in the intellectual property category (+7%). We estimate a boost to GDP growth from inventories (+3.2pp qoq ar) but a drag from net trade (-1.4pp).

  • 08:30 AM Durable goods orders, December preliminary (GS -1.0%, consensus -0.5%, last +2.6%); Durables goods orders ex-transportation, December preliminary (GS +0.4%, consensus +0.3%, last +0.9%); Core capital goods orders, December preliminary (GS +0.4%, consensus +0.3%, last flat); Core capital goods shipments, December preliminary (GS +0.5%, consensus +0.4%, last +0.3%): We estimate durable goods retrenched 1.0% in the preliminary December report, reflecting a pullback in commercial aircraft and defense orders. We expect firm gains in core capital goods orders (+0.4%) and core capital goods shipments (+0.5%), reflecting strong goods demand and higher prices.

  • 10:00 AM Pending home sales, December (GS -1.5%, consensus +0.5%, last -2.2%): We estimate that pending home sales decreased by 1.5% in December. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.

  • 11:00 AM Kansas City Fed manufacturing index, January (consensus 19, last 24)

Friday, January 28

  • 08:30 AM Employment cost index, Q4 (GS +1.1%, consensus +1.2%, prior +1.3%): We estimate that the employment cost index rose 1.1% in Q4 (qoq sa), which would boost the year-on-year rate by four tenths to +4.1%. Labor shortages continued to exert upward pressure on wage growth in the fourth quarter, though we expect a sequentially slower pace of ECI benefit growth after a jump in Q3.

  • 08:30 AM Personal income, December (GS +0.6%, consensus +0.5%, last +0.4%); Personal spending, December (GS -0.7%, consensus -0.6%, last +0.6%); PCE price index, December (GS +0.37%, consensus +0.4%, last +0.61%); Core PCE price index, December (GS +0.40%, consensus +0.5%, last +0.46%); PCE price index (yoy), December (GS +5.72%, consensus +5.8%, last +5.73%); Core PCE price index (yoy), December (GS +4.77%, consensus +4.8%, last +4.68%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.40% month-over-month in December, corresponding to a 4.77% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.37% in December, corresponding to a +5.72% increase from a year earlier. We expect that personal income increased by 0.6% and personal spending decreased by 0.7% In December.

  • 10:00 AM University of Michigan consumer sentiment, January final (GS 70.0, consensus 68.8, last 68.8): We expect the University of Michigan consumer sentiment index increased by 0.2pt to 70.0 in the final January reading.