SignalPlus Macro Analysis Special Edition: From bad to worse, from bad to worse
In a matter of days the situation changed dramatically.
After listening to numerous statements from central bank and Federal Reserve officials about the timing of interest rate cuts, coupled with further escalation of risks brought about by geopolitical conflicts, risk markets were hit by a sudden chill.
SPX fell 1.5% (92% of constituent stocks fell, every sector was in decline), U.S. Treasuries and the U.S. dollar flooded into safe-haven buying, cryptocurrencies suffered a loss of more than 10%, and BTC suffered a loss of more than 10% yesterday from last Friday. ’s $69,000 plunged to $59,000 before recovering about half of the loss.
After a string of unfriendly inflation data, last Fridays economic data was still not friendly, with Chinas trade data seriously missing expectations (exports -7.5% vs. -1.9% expected, imports -1.9% vs. +1.0% expected), while The University of Michigans consumer confidence survey in the United States (current conditions and expectations index fell short of expectations, and inflation expectations unexpectedly rose) showed some signs of stagflation.
The technical trend of the major indexes has clearly turned negative, with Chinas CSI 300 Index challenging the 200-day moving average and failing to break upward, while the SPX is on the verge of falling below the 200-day moving average for the first time since the fourth quarter.
According to JPM data, current (traditional) investors cash allocations have returned to ten-year lows, when interest on deposits in fiat currencies was still as low as around 0%. The 2.5-quarter streak of gains has prompted investors to go all-in and even go all-in in high-beta investments, leaving the market with little buffer against further stock selloffs.
That being said, according to JPM research, assuming the economy does not slip into recession, the current trajectory of the SPX is quite similar to that seen at the end of previous interest rate hike cycles. The key assumption, of course, is that the economy doesnt slip into recession, and thankfully thats still looking the case.
Returning to geopolitics, the situation is undoubtedly still highly volatile. It is worth noting that while U.S. bond yields and stock prices have risen in the past few trading days, gold spot prices have also risen. This situation is relatively rare, as if gold has Knowing that tensions were about to escalate became the subject of safe-haven buying, while other asset classes were caught off guard.
Speaking of safe investment moves, BTC (disappointingly) failed to hold on to its “digital gold” narrative, with over $1 billion in leveraged futures longs being ruthlessly liquidated as BTC prices plummeted more than 10% in minutes, and on-chain DEX also saw its largest long liquidation in more than a year.
While prices eventually recovered (due to some signs of de-escalation in the US conflict), the damage to the technical side of cryptocurrencies was already done, with technical charts showing a downside breakout, while the damage to alt-coins was also significant, with the top 20 coins Weekly losses ranged from 20-30%, and ETF inflows have also begun to slow.
As the old trading adage goes, events themselves rarely directly lead to wild price moves, but they do reveal market participants’ current positioning and risk buffers. Lets see how we recover from this setback, as weve said time and time again, risk management is always key and usually the winners are those who stay the course until the end.
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