SignalPlus: The tax office is calling for a special edition

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2023-04-20 14:10 (UTC+8)

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Yesterday's unexpected economic data started in the UK. The CPI in March was as high as 10.1%, beating the expected 9.8%, and the highest level in the G7 group, mainly due to the huge pressure on food prices and household service prices. The 2-year U

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Yesterday's surprise economic data started in the UK, with March CPI up 10.1%, beating expectations of 9.8% and the highest in the G7 group, led by food prices (+19%, highest since 1977) and household services ( + 26%) are under enormous pressure. The 14bps gain in 2-year UK gilt yields on the day pushed European and US yields higher, and December fed funds futures have regained 90bps from their SVB-induced lows in early March.

Price action in the TradFi market was flat for most of the New York trading session until the release of the Beige Book at 2 p.m., which contained mostly downbeat messages such as "consumer and business lending volumes and loan demand are generally down," "Conditions in the overall financial sector have deteriorated sharply, coinciding with recent stress in the banking sector," and "lending activity has fallen sharply... the report shows that existing or Planned projects have been postponed or cancelled."

Probably the most important piece of data yesterday, though, was the usually unspectacular Daily Treasury Statement, which will be closely watched by economists and interest rate traders as 2022 taxes are due. From yesterday to next Tuesday, the Treasury expects to receive about 75% of non-withholding tax payments, with tax receipts so far this month about 30% lower than last year due to the softening economy.

When there will be a debt ceiling default this year, the biggest variable will be tax revenues, which could bring forward the default date and consequent congressional brinkmanship if the pace of tax collection slows significantly (eg, 35-40% year-over-year) By early June (current expectations are around July-August). While a (temporary) Treasury default is always considered an unthinkable outcome, the current politically adversarial environment is more pronounced than ever before, and the risk of politically driven policy errors cannot be ruled out, so short-term US Treasuries Yields on the 4-6 month window are about 100bp higher than current to reflect the risk premium, and if the "deadline" were unexpectedly brought forward to June or earlier, this would certainly be seen as a negative risk event.

Speaking of cash management, the market should brace for a liquidity slowdown and pullback after SVB related bailouts lead to balance sheet expansion, which includes higher TGA (Treasury Account) backfills, RRP (Reverse Repurchase) activity, continued quantitative tightening, a slowdown in the pace of policy easing in China, and the debt ceiling issue.

With BTC and ETH falling below $30,000 and $2,000, respectively, cryptocurrency futures have seen massive long liquidation in the past 48 hours, the highest so far in 2023, exceeding $260 million, and open interest has also fallen sharply, showing that bulls In the process, it was forced to stop losses, and there was a lack of establishment of new short positions. The market sentiment has always been frenzied, and the perpetual contract funding rate has been positive for a period of time. After the Capella upgrade, ETH did not sell off. The market sentiment is likely to be overly optimistic. ), and as mentioned above, TradFi’s liquidity conditions may turn negative, we are becoming more cautious about the current price level, and if the stock risk sentiment declines, it may become a catalyst to further affect the price of cryptocurrencies.

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