SignalPlus Macro Research (20230717): "Summer Trading" is approaching, risk assets are expected to remain resilient.
MIT Consumer Confidence Index rose to 72.6, the highest level since September 2021, with the Current Situation Index surging (77.5 vs. previous value of 69) and a slight decrease in one-year inflation expectations (3.4% vs. previous value of 3.3%), returning to the lowest level since 2021, the decline in short-term inflation expectations is consistent with the recent weak hard data, with the percentage of components of CPI with rising year-on-year growth at its lowest level since 2009.
However, the only issue with this release of data is that long-term inflation expectations have rebounded to 3.1%, reaching a 12-year high since 2010, indicating that the battle against long-term inflation may last for a longer period of time.
Although there were not many important data releases, and the data results were largely in line with expectations, the interest rate market unexpectedly experienced significant volatility, with the 2-year yield rising by 14 basis points, and the 5-year yield also surging by 10 basis points, giving back most of last Thursday's price gains. However, the trading volume was quite light, which is a typical characteristic of summer trading, and the price trend may be a healthy correction after the endless rebound last week.
As the first wave of financial institutions to report earnings, JPMorgan (JPM), Wells Fargo, and Citigroup (Citi) have all exceeded the market's extremely low expectations, as expected. However, the KBW Bank Index fell by about 2.4% on the same day because investors are more concerned about some long-term worries mentioned in management's comments, especially:
Jaime Dimon mentioned that consumer spending is starting to "slow down slightly", while Wells Fargo CFO mentioned that weak consumer demand led to a decrease in deposits.
Dimon stated that stricter regulatory costs brought about by Basel III and new Federal Reserve guidelines may have actual impacts on the market and end-users, and he also identified "persistent high core inflation" as a risk to be faced in the future.
JPMorgan added $389 million in loan loss reserves to cope with the ongoing challenges in the commercial real estate industry. In addition, in the consumer finance business, the number of overdue loans exceeding 30 days has returned to pre-pandemic levels, and credit card write-offs have surged by $640 million.
Nevertheless, a further decrease in overall actual inflation in the United States has once again pushed up risk sentiment, with most sentiment and stock market trading volume indicators heavily favoring risk appetite and showing significant improvement compared to three months ago. It is expected that risk assets will continue to remain resilient during the summer vacation period.
In terms of cryptocurrencies, despite more positive legal comments from the SEC and Coinbase lawsuit, cryptocurrency prices have still experienced a decline in the past 72 hours, with BTC and ETH falling by about 4.5%. Now, let's start with some bad news. A new hack attack on the popular cross-chain protocol Multichain has resulted in the theft of about $103 million in tokens, just shortly after reporting the theft of $125 million in tokens earlier this month. The community suspects that this incident was an "inside job," especially since the team has officially confirmed that their CEO was taken away by the Chinese police in May. These losses have forced Multichain to cease operations, once again forcing the troubled cryptocurrency market to deal with another case of a popular project "running away."
In the SEC and Coinbase lawsuit, the hearing transcript shows that Judge Failla seems to be more supportive of Coinbase's defense position, that they operate within the legal boundaries, after all, their actions are consistent with the S-1 document approved by the SEC; Following Ripple's legal victory, the market also holds high hopes for Coinbase to achieve another groundbreaking precedent in this lawsuit, and we will continue to closely monitor it.
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