SignalPlus Macro Research (20230808): Increased Uncertainty in US Stocks, PayPal Issues Stablecoin PYUSD
After the weak performance last week, the market's trading at the beginning of this week is also less active, as the market tries to regroup and find a foothold before the release of CPI. There are no significant economic data releases from the US, and both Canada and Australia are on holiday, with trading volume only at about 50-60% of normal levels. Additionally, in July, the monthly volatility of the SPX was only 7.7%, the lowest level since December 2019. Furthermore, the daily volatility of the SPX in July did not exceed +/- 1%, which is on par with the extreme sluggishness of mainstream cryptocurrencies.
US bond yields are rising again, with the 10-year yield up 5 basis points, while the stock market rebounded about 1% yesterday after a decline in the late trading session on Friday. Google (+2.6%), Meta (+1.9%), and NVDA (+1.5%) led the gains, while Apple (-1.5%) and TSLA (-2.1%) performed poorly. Tesla's stock price was affected by the unexpected resignation of CFO Zachary Kirkhorn, who was originally seen as a potential successor to Elon as the future CEO.
CPI is the only economic data worth paying attention to this week. Due to the expected further easing of automotive sales prices and housing inflation pressures, the market generally expects the month-over-month core CPI to be around 0.2%. However, the actual market fluctuations on CPI release days this year have been disappointing, with an average volatility of only +/- 0.62%, according to Citigroup reports.
As for the volatility caused by economic events, Jackson Hole is currently priced by the market as the most important event until early September, surpassing this week's CPI and post-Labor Day non-farm payroll data releases.
From a technical perspective, last Friday's sudden drop in the stock market also led to some worrisome signs in various technical chart patterns. The SPX and Nasdaq are both close to forming a bearish engulfing weekly pattern, and the stock VIX also has a chance to complete a double bottom pattern. Also, let's not forget that we are entering the months of September to November, historically not very favorable for the stock market.
As for digital assets, PayPal becomes the first mainstream financial institution in the United States to launch a stablecoin (PYUSD). This stablecoin will be issued by Paxos Trust and launched on the Ethereum network. It will be backed by a 1:1 ratio of U.S. deposits, short-term government bonds, and cash equivalents. Obviously, this news has been warmly welcomed in the cryptocurrency field, as participants hope to see more traditional institutions truly get involved.
Interestingly, PYUSD's initial plan was to collaborate with the now infamous founder of FTX, SBF, and launch on the Solana blockchain in 2022. As with many things in the cryptocurrency field, the reality of 2022 has turned out to be very different from expectations. One cannot help but wonder what the current state of affairs would be if some key figures had acted or chosen slightly differently at that time.
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