SignalPlus Macro Research Report Special Edition: Friday the 13th
This may be the most dangerous time the world has seen in decades.
- Jamie Dimon, Friday October 13, 2023
Trading in New York on Friday began with the above-mentioned warning from JPM Jamie Dimon. Although the financial giants profits exceeded market expectations, the veteran CEO still put forward a series of reasons why he believes the world will face a lot of volatility in the future:
Consumers cash buffers are shrinking
Job market continues to be tight
Inflationary pressures rise
Government debt levels are extremely high
Largest peacetime fiscal deficit
The long-term impact of quantitative tightening is unknown
Impact of geopolitical tensions on supply chains
At the end of last week, markets were still concerned about the conflict between Israel and Hamas, and while it has had little impact on asset prices so far, there is certainly a chance that the situation will worsen;Gold soared 3.5% on Friday, volatility also surged to a 5-month high, oil prices soared 6%, U.S. bond yields fell about 6 basis points, and despite a good start to the earnings season, U.S. stocks still closed down about 0.5% -1% .
Despite strong employment and price data,Rate traders have all but ruled out any rate hikes for the rest of the year, the probability of raising interest rates in November is only 8%, and the probability of raising interest rates in December is less than 25%. In addition, the University of Michigans consumer confidence index plummeted 5.1 points to 63 in October, which was significantly lower than expected and the largest decline in 15 months. The current situation index fell to 66.7 from 71.4 last month, while the 1-year and long-term Inflation expectations echoed the rebound in CPI, reaching 4-month highs (3.8% and 3.0% respectively).
In general,Geopolitical concerns, signs of a dovish turn by the Federal Reserve, and expectations of slowing consumption have given ample fuel to the “peak interest rate” narrative, while short-term yields may be constrained by this narrative, long-term yields are likely to continue to fluctuate given the supply-demand imbalance and the surge in Treasury financing needs amid quantitative tightening and stubborn inflationary pressures.
Some investors blame the current rise in yields on foreign investors selling U.S. Treasuries, this is a wrong understanding becauseForeign investors are still net buyers of U.S. Treasuries in 2023, with the year-to-date amount reaching $275 billion. The real reason is that the Federal Reserve continues to implement its quantitative tightening program and allows the balance sheet to shrink, which is equivalent to a net sale of 7 , $20 billion in U.S. debt, in addition, due to the sharp rise in interest rates, U.S. commercial banks reduced duration risks and became major sellers of U.S. debt with a net sales amount of US$170 billion; on the other hand,Mutual funds and money market funds combined to fund the Feds reduction, and individual savers collectively bought $875 billion in bonds to profit from high cash rates,In fact, according to Goldman Sachs estimates,73% of U.S. Treasury purchases this year have come from U.S. households, who said Americans don’t save at all?
Unfortunately,Macro asset class investment sentiment doesn’t spill over to cryptocurrencies, BTC and ETH prices have stagnated in similar ranges over the past 1.5 months, but BTCs performance is still easily outperforming ETH, whose Ethereum gas fees and network statistics continue to weaken. Outside of major currencies, other well-known altcoins have also fallen by about 7% amid cold investment sentiment. DeFi daily active addresses have also continued to decline. Optimism and Avalanche have fallen by 30% in the past month.
One area affected by macroeconomics is DeFi’s borrowing yield.The rise in fiat interest rates slowly penetrates into the cryptocurrency field through RWA, borrowing yields rose steadily throughout the year.
In terms of positive news,The U.S. SEC missed the deadline to seek rehearing (Friday night) in response to a court ruling in favor of Grayscale converting its trust fund into a BTC spot ETF., briefly pushed BTC above $27,000 before the weekend and narrowed Grayscale’s trust fund discount to 17%; having said that, the US SEC can still risk wasting more time in cumbersome legal proceedings , using new “reasons” to deny and delay approval in the hope that the agency can regain its senses and make reasonable decisions based on the court’s recommendations.
The markets focus will be on earnings reports at the beginning of this week, BoA and Goldman Sachs will release earnings reports on Tuesday, Morgan Stanley, Tesla and Netflix on Wednesday, TSMC on Thursday, and AMEX on Friday; in terms of economic data, there will be inflation data in the UK and Eurozone and the United States later this week. retail sales data, and finally, before the FOMC enters the silence period, Powell will speak at the Economic Club of New York on Thursday to confirm or refute the FOMCs recent dovish turn. I wish you all smooth trading!
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