SignalPlus Macro Analysis: Risk-off Sentiment Continues to Intensify, Stocks, Bonds, and Cryptocurrencies All Decline

2024-04-03 17:20

Read this article in 8 Minutes

AI summary

View the summary

Original title: "SignalPlus Macro Analysis (20240403): Risk aversion continues to intensify, stocks, bonds and cryptocurrencies fall together"

Original source: SignalPlus

The risk aversion that began the day before continued to intensify, and stocks, bonds and cryptocurrencies fell simultaneously. On the policy side, Fed officials continued to withdraw Powell's dovish comments at the March FOMC meeting, and Loretta, Mester and Daly all tried to withdraw any expectations of an imminent rate cut.

The Fed's behavior is not surprising. In addition to the high inflation data mentioned earlier, Citi's Global Economic Surprise Index also rose to a one-year high due to continued strong economic performance.

Bond investors may be starting to get nervous, with the MOVE bond volatility index rebounding sharply from its lows yesterday, while the 10-year yield is heading for 4.50% and the chances of a rate cut in June now seem 50-50. Moreover, despite market expectations of rate cuts, companies continue to flood the issuance market to lock in borrowing rates, with about $20 billion of new debt issuance expected this week and as much as $100 billion this month, up more than 50% from the same period last year.

On the risk-off side, oil prices have quietly recovered to a 2023 high of around $85 a barrel, up 20% this year, which may be the main CPI indicator that consumers really care about. Moreover, despite Powell’s dovish turn and the fact that opposite-trading assets like gold and BTC have risen this year, the USD has perversely appreciated against most major currencies (European inflation missing expectations, BoJ exiting ZIRP, China’s economic woes), which has put significant depreciation pressure on currencies like the RMB, which is already trading above its 2023 worst-case premium on FX forwards as markets remain concerned about the state of the Chinese economy.

On the equity front, in addition to fading rate cut expectations, the index was weighed down by Tesla (-7%), which reported rather poor first quarter results that severely missed expectations, with a sharp drop in vehicle deliveries (-14%), concerns about factory shutdowns, rising inventories, and concerns about increased competition from BYD and Chinese automakers all adding to the negative sentiment around the stock. Will the SPX underperform in April as the market “catch up” to rate cut expectations? Or will we enjoy another quarter of prosperity?

Speaking of risk aversion, crypto prices have plummeted, with BTC dropping from 69k to a low of 64.5k yesterday, with nearly $400m of futures positions liquidated in 18 hours. The drop occurred in Asian trading hours as usual, likely in response to ETF net inflows (-86m) released after the US close, coupled with Asian investors holding mainly long positions.

Future positions should be clearer due to this wave of stops, perpetual funding rates have also fallen sharply, and short-term put skew has increased as spot price momentum has weakened significantly.

Short-term volatility may continue for a while. Blockchain analysis company Arkham reported that a wallet under government control has been activated and several test transfers to Coinbase have been performed, which is expected to be a precursor to larger-scale transfers. The US government may sell tokens back to fiat currency. In addition, ETF issuer Proshares has launched several leveraged Bitcoin ETFs (BITU and SBIT) for retail investors. Enjoy it!