English: Impact of FTX collapse on the stock market and December FOMC
Hello, this is Shimoyama.
In early November, held
after the FOMC,
strong employment data
and the impact of the Consumer Price Index
have kept stock prices on an upward trend,
but, while the stock market is thriving,
the big plunge is occurring in the
cryptocurrency market.
The cause is the collapse of the cryptocurrency exchange
FTX,
which has a presence even in Japan as
FTX Japan Co., Ltd.
FTX, which boasted the world's third-largest trading volume,
and which is sometimes dubbed digital gold,
Bitcoin
has fallen by more than 20% at times,
including altcoins,
as funds have flowed out of the cryptocurrency market.
So,
will these funds move toward the stock market?
Meanwhile, last weekend,
one of the FOMC members,
Fed Reserve Bank of Boston President Collins,
stated that
a 75 basis point rate hike
remains a possible option for the December FOMC,
and several data points
have raised the level necessary for a Fed rate hike,
according to his comments.
Moreover, this week,
from Thursday the 24th,
in the Western world
Thanksgiving is beginning,
and by Wednesday
more institutional investors are expected to close out positions.
Therefore, this time we will explain
the impact of FTX's collapse on the stock market,
the precautions before Thanksgiving,
and what to be mindful of before the December FOMC.
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FTX’s Collapse
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FTX had entered Japan as
“FTX Japan Co., Ltd.”
therefore,
many of you may be familiar, but
in 2019, just three years ago,
a young American man in his twenties,
a former Wall Street trader,
founded it in Hong Kong,
and with the strength of its service lineup and rapid onboarding of new ventures,
it quickly grew into a gigantic cryptocurrency exchange.
FTX’s liabilities are said to be in the multi-trillion-yen range,
and even in the rapidly growing crypto industry
this was the largest collapse to date,
and due to concerns about a domino effect on related companies’ management,
there were allegations of a “Lehman Brothers moment in the crypto world,”
and even talk of massive accounting fraud akin to Enron in 2001.
As a result of FTX’s collapse,
cryptocurrencies like Bitcoin have fallen across the board,
and the overall market capitalization
from the 7th to the 11th, over five days,
shrank from just under 150 trillion yen to a little over 110 trillion yen,
a drop of about 25%.
Compared to the peak in November 2021,
the market size has shrunk to about a quarter.
So where did the 40 trillion yen of funds leaving the cryptocurrency market go?
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Where did the funds from the cryptocurrency market go?
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In conclusion,
funds from the cryptocurrency market have flowed into
government bonds and other debt instruments,
as well as into the stock market.
large institutional investors and other big players
have been entering the cryptocurrency market seriously since last year,
and for institutional investors,
there is a high likelihood of a further drop,
and it is not surprising if some funds are withdrawn from the crypto market.
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Pre-Thanksgiving caution and next FOMC
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As mentioned in last week’s newsletter,
regarding the future stock market,
the general trend is that
until the December FOMC,
with no major economic events or indicators released,
there are no new reasons for the policymakers to raise rates,
so the uptrend is expected to continue.
However, before Thanksgiving,
one of the major Western events,
Thanksgiving,
on November 24,
institutional investors are also likely to rebalance,
closing out positions.
Also, as noted at the outset,
some statements from Federal Reserve officials suggest
that a 75 basis point rate hike in December remains under consideration,
which could counter the trend of slowing hikes,
and such remarks require caution.
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Summary
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Thanksgiving is a major milestone in the Western world,
and it marks the start of the holiday season,
including Christmas holidays.
Also, on December 13th and 14th,
the FOMC meeting is scheduled for the following week,
and the December employment data release is anticipated.
While there may be anomalies in midterm elections
and capital inflows from the cryptocurrency market could support stock prices,
the key factor shaping the next moves in the stock market
will be whether the policy rate is 50 basis points or 75 basis points at the next FOMC.
This will likely be the main determinant of market direction.
We will continue to provide
the latest news and
stock market trends in this newsletter.
Thank you for reading until the end today as well.
Keizo Shimoyama
*Disclaimer*
We strive to ensure the content of this newsletter is accurate and up-to-date,
but we cannot be held responsible for any losses arising from the information herein.