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Fed minutes scared everyone. For how long though?

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@karamyog
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Federal Reserve's minutes from its last meeting were released on Wednesday. I was not well so the only updates I got were for cryptocurrencies and I was happily surprised to notice how well my expectation of a sub $40k BTC was playing out. Little did I know that the culprit was US Fed and not anything technical that I had pointed out and the mayhem occurred in every market (barring a few).

Bitcoin dropped nearly 10%, Ethereum 16%, and Hive 18%. Volume was fairly large for Bitcoin. This beta play is expected when the market flag bearer falls hard. Hive has anyways been holding well during this dull Bitcoin season.

The above chart shows how Nifty has been doing exceptionally well. During the last month, Nifty was in correction mode as DM indices rallied. However, now when the Fed has decided to pull the foot off the gas pedal, Nifty is holding strong. Probably because FII selling is over and domestic funds are still buying. S&P, MSCI EM, and MSCI world have all had similar performances - about 1.5% down.

Brent crude is another outperformer. US dollar remained stable whereas Gold sold off. Rates have risen sharply across the curve, aided by Fed's inflation fears. The market now expects one rate hike by March.


How long will this inflation scare last? Inflation is probably a temporary phenomenon and will stabilize once the demand-supply imbalances normalize across the globe. Will a 20% correction in equity markets make the Fed do a 180?

The US economy just reported relatively bad Jobs data. What a bad weekend to start the new year.

S&P is currently trading near 50 DMA, an area of strong support. Markets can easily absorb a rate hike by March. Markets should find support here. However, the fate of the markets will be decided by the Fed's narrative, which in turn will be decided by market action (as well as inflation to some extent). Anywhere between 10% to 20% correction in equities will make the Fed pullback. They want to tackle inflation, not spook markets.

See this sell-off as temporary and a buy-the-dip opportunity in equity markets. Not so sure about Bitcoin and other altcoins to be honest.

Posted Using LeoFinance Beta