The Looming Recession Begins to Impact Consumers

Newsletter of the week 26 August - 2 September. In this week's newsletter we cover the US housing market, US unemployment rate, the global energy crisis, Blackrock et. al boycotting the energy industry, the Ethereum merge' Cardano upgrades, Bitcoin price, and US30 price.
by Yoaquim Boom
October 2, 2022

In this week's newsletter we cover:

  • The US housing market decline begins.
  • US unemployment rates are up by 0.2% in August.
  • The energy crisis has begun impacting consumers.
  • Blackrock and other investment firms ‘boycot’ US energy businesses.
  • The Ethereum merge brings its risks, what you should beware of.
  • Cardano announces the launch of its Vasil upgrade.
  • Bitcoin holds on to 20k.
  • US30 begins to bounce after stark drop.

Housing Market Begins its Decline

With recessionary fears continuously looming and the widespread stock market crash of over 20% since November highs, the housing market is feared to be next.

Experts at the research firm Moody’s Analytics said that homes in many US regions are “overvalued” by more than 25%.

The report asserted their belief that there are cities in which the housing market is overpriced by over 60%, these states included the likes of Boise and Charlotte.

Admittedly the report by Moody’s analytics is far more pessimistic than many other reports by renowned analytics firms.

Still other agencies have repeated Moody’s perspective, with predictions of US home prices dropping by over 15% in the year to come.

The US Job Report

Government data on Friday 2 September showed the job market’s remote resilience continued in August.

Although employers have begun to pull back on employing, with the unemployment rate rising by 0.2%, the statistics were better than the expected sum.

The difference is not immense, but investors expected the unemployment rate to be stagnant at July's 3.5%.

The market reaction has been minimal, with volatility both to the upside and downside on Friday, it seems the market is reacting positively as of now.

In expectation of another interest rate hike investors and traders seem to want to get one last push out of the market and used the job report as a catalyst.

The World Wide Energy Crisis

US, UK, and EU electricity prices are surging, and more people than ever are struggling to pay the energy companies.

Reportedly, more than 20 million US households have fallen behind on their utility bills.

Meanwhile, in the UK more than 1.7 million households are planning to stop paying their energy bills on the 1st of October.

The majority say they have been inspired by Don’t Pay UK, a movement that calls for consumers to cancel their energy payments by 1 October.

The goal of Don’t Pay UK is to begin a collective non-payment strike to force the government and energy giants to rethink.

Previously such initiatives have borne fruit for the population, let’s see if this time is different.

Texas vs Blackrock & et. al in Energy Crisis "Boycott"

Texas is taking steps that could cost BlackRock Inc., UBS Group AG, and eight other finance firms business with the state after finding them to be hostile to the energy industry.

According to sources Blackrock et. al. have been advocating a decrease in oil and gas consumption across US, including in Texas, US's top producer of crude and natural gas.

Glenn Hegar, Texas's comptroller said in a statement that some financial institutions, including Blackrock, are "engag[ing] in anti-oil and gas rhetoric publicly yet present a much different story behind closed doors.”

The republican state comptroller, the 10+ firms he considers to be in the process / have in the past engaged in the “boycotting” of the fossil fuel sector.

The likes of which included Blackrock, UBS Group AG, BNP Paribas, Credit Suisse, and Danske Bank.

So far, the allegations have been mitigated and disputed by the alleged boycotters.

An Update on Ethereum's Merge

The Ethereum merge, for which investors have been waiting for over 5 years is now sooner than ever.

As covered previously, the second largest cryptocurrency by market cap, Ethereum, is converting from proof-of-work consensus to proof-of-stake consensus in September.

The Ethereum foundation has recently come out to confirm that the merge date is set between 16-20 September.

Given the technical implications of the merge, there are certainly risks to beware of leading up to, during, and after the merge.

The first danger is if it all goes wrong, although this seems unlikely due to Ethereum having run numerous testnets which have been successful, it remains a possibility to beware of.

Another danger for investors and traders is the possible trading outages due to trading activity.

With immense volatility occurring for Ethereum during the merge, traders and investors should take precautions trading around the merge date.

Immense volatility has previously caused slow transactions or even exchange outages.

In anticipation of the trading outages, exchanges have limited or briefly paused Ethereum deposits and withdrawals during the expected merge dates.

Read more on 'The Merge' here

The Cardano Network's Vasil Upgrade

Charles Hoskinson, the founder of Cardano, a proof-of-stake blockchain often seen as a primary competitor to Ethereum announced on Friday 26 August that a hard fork called Vasil is due soon for the Cardano network.

You can read more on hardforks and the tokenomics of cryptocurrencies here.

Cardano supports smart contracts and NFTs. Its token, ADA, is the 8th largest cryptocurrency by market cap.

During the announcement, Hoskinson explained that “Extensive testing is still being done”.

Hoskinson announced the hardfork is due for launch “sometime in September.”

It is likely no coincidence that the launch date of the Vasil fork coincides with the long-awaited Ethereum merge launch date.

This timing is a great marketing move. If the Ethereum merge fails or even fails to meet the expectations of investors, many investors will flock to the next best system, which for a large majority is Cardano.

The exact date of the Cardano fork is still unknown and largely depends on crypto exchanges.

Hoskinson explained that the concrete date of the Vasil hard fork will be set the moment the 5 largest crypto exchanges are prepared for the adoption of the changes that the hardfork will entail.

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Bitcoin Price Analysis

Bitcoin has seen a heavy drop since its rally peak on the 15th of August.

With the breakdown of the flag pattern occurring on the 16th of August as previously mentioned in last week's newsletter, Bitcoin doesn't look to strong.

Bitcoin seems to have found support at the 19600-20000 level and is holding on well (Fig.1).

Although the support footing has been found, Bitcoin has been unable to put in a meaningful bounce since it bottomed out around 19600 on the 28th of August.

The best chances for Bitcoin bulls are in forming a tightening price pattern and breaking to the upside.

As of the 2nd of September, we seem to be seeing a sort of restricted pennant breakout to the upside, the pressure is on bulls to prove themselves here.

Fig. 1 12H BTC Aug 2022 - Sep 2022 (TradingView)

US30 (DJIA) Price Analysis

We covered the likelihood of a breakdown in price for the US30 (Aka “DJIA” Dow Jones Industrial Average) in last week’s newsletter.

The breakdown occurred as predicted, with a total drop of 9% since the top on the 16th of August.

The follow-through of the price breakdown occurred on the 26th of August. The US30 dropped by 3% for that day.

Currently, the Dow Jones has found support at a confluence of both the horizontal support line first visited in May and its diagonal uptrend support from the June lows (Fig.2).

The horizontal support served as resistance for the June-July ascending triangle formation which created the rally we have seen throughout July and August.

For now, traders should be watching the continued resistance of the channel, the resistance currently sits at about 32400.

Fig. 3 1D DJIA/US30 Apr 2022 - Sep 2022 (TradingView)