SignalPlus Macro Report (20230804): Macro Improves, Cryptocurrency Market Continues to Dull

Nasdaq has seen a significant adjustment after a bull market surge, with the VIX index breaking through the $17 level in pre-market trading today after ten months of continuous decline, with a weekly gain of nearly 30%.

Some analysts say that the downgrading of long-term US debt ratings to AA+ by rating agencies has triggered this round of stock market adjustments. However, in today's society, which country or currency dares to claim that they have the strength to take over the hegemonic position of the US dollar? Conspiracy theories are not to be taken seriously, but the actions of rating agencies in this wave are truly baffling. I believe that the trend of the US stock market will not change its long-term upward trajectory due to these baseless actions.

The market trend yesterday was all about rising yields. Bonds have fallen for three consecutive days, with the 30-year yield rising by 13 basis points and the 2/10 spread steepening by 9 basis points. The focus of the market continues the pain of the past few days, with the bond market being forced to face a triple blow of increased bond supply, widening yield ranges in Japanese government bonds, and strong US economic growth. Investors are also forced to unwind their brainless long positions betting on the Fed starting to cut rates in 2024.

Additionally, a series of strong employment data (Challenger job cuts down 8.2% YoY compared to a 25.2% YoY increase in June, 4-week average initial jobless claims dropping from 233,750 to 228,250, and ADP data surging) along with an unexpected increase in the ISM services price index, leading to the largest price growth in 2 years after nearly 16 months of continuous decline, undoubtedly worsen the current situation.

Looking at recent yield trends, long-term bond yields have risen by about 30 basis points in 3 days, equivalent to the range of yield changes we saw in the 3 months leading up to the summer slump, although the Bank of England chose to raise rates by only 25 basis points (to 5.25%) and reduced the terminal rate of UK gilts to 5.75%, it was still not enough to save the U.S. bond market, as trading activity was only one-way selling, and the entire trading session was filled with forced selling of long-term bonds. Trading volume reportedly reached 150% of the normal level, and the weakness of U.S. bonds ultimately led to an expansion of credit spreads, which is also a possibility we mentioned yesterday.

The stock market was also dragged down, with the SPX index initially falling 0.8%, but later rebounding to close flat, preparing for the release of Apple and Amazon earnings after the market close.

Firstly, Apple's revenue increased slightly, but disappointing iPhone sales were a letdown for the market. Management also predicted that fourth-quarter performance would continue to decline from the third quarter, with double-digit declines expected in Mac and iPad sales due to the severity of the year-over-year base effect. Additionally, Tim Cook did not mention any new products related to generative AI.

On the other hand, Amazon exceeded market expectations in revenue, profitability, and third-quarter forecast, driven by stable growth in AWS, causing its stock price to rise 10% in after-hours trading. Furthermore, while online sales have performed well this year, management mentioned that high inflation continues to put pressure on consumers, and as consumers become more price-sensitive, they see a "downward trend" in brand choices.

Today, non-farm payroll data will be released. Considering the strong recent employment data and the higher-than-expected employment indicators based on other big data foundations, the market believes that today's data may be higher than the forecasted 200,000; in addition, the market will also pay special attention to Average Hourly Earnings (AHE). If this data rebounds (similar to the ISM Services Index), it may force the FOMC to act again in the fourth quarter, while the futures market currently prices in only a 20% possibility of another rate hike before the end of the year.

Cryptocurrency prices continue to face pressure in the DeFi event, with the prices of liquidity protocols such as Curve, Uniswap, Maker, and Aave continuously falling in the past 24 hours; the prices of BTC and ETH remain at the levels of the past two weeks, but rising interest rates may bring adverse effects, much like high interest rates also bring price resistance to gold and other alternative assets.

Coinbase announced its performance results yesterday, with revenue slightly higher than expected (-12% vs expected -22%), as the rebound in cryptocurrency prices in the first half of the year and higher-than-expected interest and staking income resulted in a smaller loss (-$97 million) than the market expected. However, analysts are concerned about the long-term viability of the company's staking business, as staking may become a regulated activity in the United States.

Finally, here are some positive news. As Hong Kong continues to transform into a digital hub, The Securities and Futures Commission (regulatory agency) has officially granted licenses to two exchanges (Hashkey Exchange and OSL). These two exchanges can now legally serve retail investors within the territory and provide approved fiat gateways. The market's interest in licenses remains hot, and we hope that more institutions will be approved in the coming quarters, allowing Asia to continue leading in digital asset regulation and clear legal frameworks.

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