Geopolitical Factors and U.S. Market Resilience

Geopolitical tensions, particularly involving Russia and Ukraine, have escalated supply concerns. Recent Ukrainian strikes on Russian oil refineries, notably at Rosneft PJSC’s largest facility, have disrupted Russia’s oil production capacity. Simultaneously, OPEC+ members are maintaining their output cuts, contributing to a leaner supply scenario. In the U.S., despite signs of economic slowing, the oil market remains robust. A surprising decrease in U.S. crude oil stockpiles, coupled with a drop in gasoline inventories to a three-month low, signals strong domestic demand.

Federal Reserve’s Policy and U.S. Dollar Strength

The Federal Reserve’s monetary policy continues to be a focal point for oil traders. The possibility of interest rate cuts remains uncertain due to persistent high inflation. Any reduction in rates could stimulate the U.S. economy, potentially boosting oil demand. Meanwhile, the strengthening U.S. dollar has added complexity to the market, as a stronger dollar typically makes oil more expensive for holders of other currencies. However, this has not significantly dampened the bullish sentiment in the oil market thus far.

U.S. Production and Rig Count Trends

The U.S. oil industry is showing signs of increased activity, with energy firms adding the most significant number of oil and natural gas rigs in a single week since September. The rise in the oil rig count, reaching its highest in six months, indicates a proactive response to the current market conditions. This uptick in U.S. production efforts aligns with the global trend of tightened supply and robust demand.

Weekly Market Forecast

Looking ahead, the weekly outlook for the oil market is predominantly bullish. The combination of increased global demand, as highlighted by the IEA, along with geopolitical supply disruptions and strategic supply adjustments, supports this view. Despite the global economic concerns and the strong U.S. dollar, the demand for oil remains resilient. This, along with the robust refining margins and high crack spreads, suggests that oil prices are likely to maintain their upward trend in the coming week. As the market responds to these multifaceted drivers, traders should anticipate continued growth in oil prices, driven by persistent demand pressures and supply constraints.

According to the CME FedWatch Tool, the probability of a 25-basis point June Fed rate cut fell from 57.4% to 52.9% in the week ending Mar 15. More significantly, the chances of a 25-basis point May Fed rate cut slid from 23.2% to 8.7% in the week ending Mar 15.

BTC-Spot ETF Market Resilient Despite BTC Pullback

The BTC-spot ETF market saw net inflows fall from $683.7 million (Mar 13) to $132.5 million (Mar 14). iShares Bitcoin Trust (IBIT) saw net inflows of $345.4 million to ensure the BTC-spot ETF market extended its run of net inflows to nine sessions.

Nonetheless, the impact of the US data was evident. Fidelity Wise Origin Bitcoin Fund (FBTC) saw net inflows slide from $281.5 million (Mar 13) to $13.7 million (Mar 14). FBTC net inflows were the lowest since launching on Jan 11. (All BTC-spot ETF flow data from BitMEX Research).

BTC and the broader crypto market joined the Nasdaq Composite Index in negative territory on Mar 14 and Mar 15. However, profit-taking impacted BTC more. Year-to-date, the Nasdaq was up 6.41% to Mar 15. In contrast, BTC was up 60.80%, leaving BTC at risk of a sharper pullback.

Despite the two-day pullback from the new all-time high of $73,810 (Mar14), BTC-spot ETF net inflows could see a new weekly high. From Monday (Mar 11) to Thursday (Mar 14), the BTC-spot ETF market saw total net inflows of $2,368.7 million. In the week ending Feb 16 (Monday to Friday), the BTC-spot ETF market saw total net inflows of $2,271 million, the previous weekly high.

The flow data supported bets on a BTC move toward $100,000. However, the flow data for Mar 15 could impact buyer demand for BTC. A large investor base may be using BTC-spot ETF trends as a proxy for BTC price trends.

Senators Jack Reed and Laphonza Butler, both Democrats, urged Gensler to restrict the expansion of the crypto-spot ETF market, saying,

“We believe the SEC should strictly limit the precedential application of these approvals. While the bitcoin market has displayed serious weakness, it is nonetheless far more established and scrutinized than the market for any other cryptocurrency. However, vulnerable bitcoin may be to fraud and manipulation, markets for other cryptocurrencies are far more exposed to misconduct.”

The Senators further raised concerns about market surveillance and emphasized the importance of safeguarding retail investors from thinly traded cryptocurrencies and those vulnerable to pump-and-dump schemes.

Uncertainty about the SEC approving the ETH-spot ETF applications intensified in recent weeks. Hopes of an XRP-spot ETF market have also faded. The letter to Chair Gensler could further impact investor hopes of an XRP-spot ETF approval.

SEC intentions to appeal the ruling on the Programmatic Sales of XRP would justify the inclination to reject altcoin ETF applications. In July 2023, Judge Analisa Torres ruled that programmatic sales of XRP do not satisfy the third prong of the Howey Test.

Spot ETF issuers are unlikely to submit XRP-spot ETF applications until the end of the appeals process. The ongoing SEC v Ripple case is in its final stages. Judge Torres could deliver a summer ruling on the Penalty for breaching Section 5 of the 1933 Securities Act. Crypto experts believe an appeal against the Programmatic Sales ruling could extend the case into 2025.

The Bank of Japan meets on March 18 and 19. Like the subheading says, the news flow on a likely tightening of policy is relentless.

The Nikkei had this:

Bloomberg (gated) has canvassed MUFG (Mitsubishi UFJ Financial Group is a Japanese financial services group that is the largest in the world measured by assets) and reports this:

• “Given the stronger-than-expected wage talk outcome, the BOJ will likely ditch negative rates and yield curve control next week,” said veteran BOJ watcher Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
  
• 
  “The BOJ could have waited until April if the wage talk outcome wasn’t this strong. But with markets already pricing in the chance of an exit, it would actually be a surprise if the bank forgoes ditching negative rates next week,” she said.

From a separate report, on Rengo, a federation of unions, saying its members have so far secured deals averaging 5.28%, a figure that far outpaces the initial 3.8% tally from a year ago and easily the highest in 30 years:

• “This clears the last hurdle for the BOJ and I think it will scrap its negative rate next week and make a shift toward policy normalization,” said Taro Saito, head of economic research at NLI Research Institute. “If they stand pat now, markets will get volatile and the yen is likely to plunge.”

And, Reuters:

• Upon exiting its negative rate policy, the BOJ will also ditch its bond yield control and discontinue purchases of risky assets such as exchange-traded funds (ETF), sources have told Reuters

I did convey more cautious thoughts from UBS:

But I think they may be standing in front of a freight train.

—

The BOJ announcement will come sometime after 0230 GMT on Tuesday 19 March. The Bank doesn’t have a firmly scheduled time for its meeting statement, it never does.

Renowned author of “Rich Dad Poor Dad” Robert Kiyosaki recently underscored Bitcoin’s supremacy over traditional assets like gold and silver. In a social media post, Kiyosaki expressed his preference for Bitcoin due to its fixed supply, contrasting it with the dynamic nature of gold and silver prices. 

He highlighted the inherent limitation of Bitcoin’s supply to 21 million coins, a factor that distinguishes it from precious metals and commodities like oil.

Kiyosaki’s remarks come at a time when Bitcoin’s price experienced a notable decline, dipping more than 6.5% in the past 12 hours. Despite this setback, Bitcoin is still hovering around $68,400, merely 9% lower than its record high, marking a remarkable ascent in recent times.

The author’s confidence in Bitcoin’s future prospects appears unshaken, as evidenced by his earlier prediction of BTC reaching $300,000 by 2024. Kiyosaki’s bullish stance on cryptocurrency underscores a growing sentiment among investors and financial pundits, who see the cryptocurrency as a formidable store of value and investment opportunity.

Paradigm shift

Bitcoin’s meteoric rise in recent years has garnered significant attention from both retail and institutional investors, with many viewing it as a hedge against inflation and economic uncertainty. Its decentralized nature and fixed supply have contributed to its allure, positioning it as a digital alternative to traditional assets.

While volatility remains a characteristic feature of the cryptocurrency market, proponents like Kiyosaki remain undeterred in their conviction of Bitcoin’s long-term potential. As the debate between traditional assets and digital currencies continues, “Rich Dad’s” endorsement adds weight to Bitcoin’s status as a dominant player on the financial landscape, signaling a potential paradigm shift in investment preferences.

Higher interest rates exude a bearish influence on gold because gold does not contain any intrinsic yield. When fixed income assets such as treasuries have high yields it diminishes the allure for gold. This scenario is the economic environment that we find ourselves in today.

One-Two Punch

This week two important reports revealed new data concerning current inflationary pressures. The Consumer Price Index revealed that inflation for February came in hotter than expected. Yesterday’s release of the most current Producer Price Index revealed that producers raised the price of their goods by 0.6% during the month of February. Because a hot PPI is a precursor to a hot CPI we can expect that inflation this month could continue to be elevated.

This has pressured gold off the highs achieved last Friday. Tuesday’s release of the CPI took gold futures down $25, and on Wednesday gold recovered gaining back approximately $15 of Tuesday’s decline. For the remainder of the week, gold softened but still did not trade to a lower low than the low achieved on Tuesday.

One week ago, gold futures challenged $2200 per ounce and traded to a high of $2203. The price of gold above $2200 for the first time in history was short-lived, but the fact that gold has remained above $2150 all week is a sign that a base is being formed, and we may see that price tested again soon. Gold has been extremely resilient and able to hold onto most of its recent gains even with moderate headwinds from dollar strength, and higher treasury yields.

Gold Futures Hold Steady Amidst Anticipation of Fed’s March FOMC Meeting