Global Capital Market Daily Recap & Outlook-20230519

Duet Protocol
14 min readMay 19


Key Focus:

Debt negotiation continues to make optimistic progress; Logan and Bullard lean towards a rate hike in June; Philadelphia Fed data greatly improves; jobless claims lower than expected.

Overview: US stocks surged, cryptocurrencies fell, bonds fell, oil fell, gold fell, dollar rose (notably, Asian and European stock markets have generally risen in the past two days, and global optimism may resonate, but it may not necessarily be good for cryptocurrencies)

SPX +0.94% to 4,198
NDX +1.81% to 13,834
DJI +0.34% to 33,535
RUT +0.58% to 1,784


Tech +2.06%, Communications Services +1.79%, Discretionary +1.54%, Finance +0.7%, Industrials +0.67%, Materials +0.55%, Energy +0.49%, Healthcare -0.24%, Utilities -0.36%, Staples -0.44%, Real Estate -0.68%.

Leading tech stocks continued to surge:

Tesla closed up 1.7%, up for three consecutive days, refreshing Tuesday’s more than 4% gain to its highest level since April 19;
Netflix was up more than 10% during the session, closing up 9.2%, up two days in a row to its highest level since last April;
Amazon closed up 2.3%, up for four consecutive days, breaking the highest level since last October for three consecutive days;
Meta, despite a morning dip, accelerated gains in the midday after announcing the training and reasoning AI chip project and revealing the details of the first custom AI chip, closing up 1.8%, up for two consecutive days to its highest level since last January;
Google closed up nearly 1.7%, up three days in a row to its highest level since last April;
Microsoft closed up over 1.4%, up for four consecutive days to a new high since December 2021; Apple closed up nearly 1.4%, up for two consecutive days, close to the high since the end of 2021.

Bond market: Long-duration government bonds generally saw a sharp rise in yields, reflecting risk-off sentiment and hawkish Fed expectations

Cryptocurrency: Generally bounced back after a significant decline, BTC, ETH once fell more than 3%, in line with the market’s cooling demand for alternative allocations, which is consistent with the decline in gold, safe-haven currencies Swiss Franc and Japanese Yen, XAU fell 1% today to the 1950 dollar line, a new seven-week low, pulling back 100 dollars from last week’s high of 2050.

Judging from the decline and rebound, ETH is stronger than BTC, and some DEFI tokens also perform well, SNX, Camelot, SSV, UNI even returned to positive values.

Over the past week, Bitcoin has been trying to break through the $27,500 resistance, but to no avail. As the risk of debt ceiling negotiations basically settled, the longs that have been unable to break through today chose to give up, and BTC’s decline refreshed the low of the week.

Main Drivers:

There are more signs that US lawmakers are making progress in debt ceiling negotiations and will be able to avoid a first-time default. Also, recent hawkish comments from Fed officials and decent unemployment benefits data lead markets to speculate that the Federal Reserve may need to maintain higher interest rates for a longer period given persistent inflation.

Fed Officials Remarks:

Earlier this week, the more dovish Logan (Voter) used a tough tone when discussing more rate hikes, suggesting that current data doesn’t support a pause in hikes in June, even though future inflation and employment data might change her views. She expressed concern over whether inflation is falling fast enough and pointed out that risk management in the financial system should never prevent the Fed from restoring inflation to its target level. Logan noted that, so far, the impact of banking pressure is equivalent to a Fed policy rate hike of 25 or 50 basis points.

Following Logan’s remarks, traders’ odds of a Fed rate hike next month rose to about 40%.

Jefferson (Voter), who is expected to be appointed Vice Chairman of the FED, partially repeated his views from last Friday, noting that inflation is too high and, by some measures, progress is slowing. However, he acknowledged the lag effect of monetary policy and noted that a year is not enough to feel the full impact of all rate hikes so far. (willing to wait patiently for the effect of the rate hikes)

BULLARD (nonVoter) said that higher interest rates are insurance against inflation. He will keep an open attitude at the June meeting, but currently leans towards a rate hike. Compared to his previous comments made a few days after the Federal Open Market Committee meeting on May 5th, he is more inclined to hike rates in June. His viewpoint is more direct; at that time, he said that the Fed would “eventually” have to raise rates, which seemed to be a compromise on policy before evaluating incoming data. In today’s Financial Times, Bullard stated that he still believes that the interest rate is at the low end of the “sufficiently restrictive” area, with the upper limit above 6%, and stated that “it is better and more prudent to be in the middle of this area.” Bullard also reiterated his unique view that the decline in U.S. Treasury yields has offset the impact of banking tightening.

Debt Ceiling Negotiations:

In the U.S. stock market morning session, Republican leader and Speaker of the House McCarthy said that the negotiators for the debt ceiling might reach a principled agreement as early as this weekend, and he expects the agreement to be submitted to the House for voting next week. Comments said that this is the most positive statement McCarthy has made so far on debt ceiling negotiations. McCarthy’s speech drove a surge in U.S. stocks in the morning, with both the S&P and Dow turning up. With the lead of tech stocks such as Netflix and Nvidia, the Nasdaq continued to refresh its eight-month high, and cryptocurrencies chose to fall after a slight fluctuation.

US Senate Majority Leader Schumer stated that progress is being made in debt limit negotiations, and the Senate will take immediate action after the House takes action on the debt limit issue. Democratic Senator Sinema stated that she is beginning to be confident in reaching a debt agreement.

The Freedom Caucus of the U.S. House of Representatives called for the Senate to pass the House Republicans’ debt limit plan and urged no further negotiations before the Senate takes action on the House’s debt limit bill.

U.S. House Republican McHenry stated that there has been almost no progress in negotiations on the debt ceiling.

Economic Data:

[Philadelphia Fed]

The Philadelphia Fed Manufacturing Index soared from -31.3 in April to -10.4 in May, higher than the expected -19.8, offsetting the sharp decline in the New York Manufacturing Index. New orders (from -22.7 to -8.9) and shipments (from -7.3 to -4.7) both increased, but were still negative. The future capital expenditure plans index rose from -5.4 to 2.5, the first positive value since February.

[Unemployment Claims]

Initial claims for unemployment benefits were lower than expected, falling from the previous 262,000 to 242,000. The drop to 242k fully offset the sharp rise to 262k in the previous month. Continuing claims also fell from the previous 1.807 million to 1.799 million, falling more than expected. Considering the recent strong economic data (retail sales, industrial output, non-farm employment data) indicate that the economy is cooling down not as quickly as the Fed had hoped, and recent hawkish changes in Fed speeches have opened the door to a rate hike in June. The minor dive in the crypto market after the data release also validated market concerns.

[US Existing Home Sales Fell in Spring, Home Prices Fell by 1.7% YoY, Largest in 11 Years]

After experiencing a brief unexpected surge in February of this year, U.S. existing home sales continued to fall, down by 3.4%, less than expected, and the decline was larger than in March. The median home price nationwide fell by 1.7% YoY to $388,800, the largest drop in 11 years. Among them, the drop in home prices in the Western region was the largest, while many Eastern regions continued to rise compared to the same period last year.

Crypto News:

[Ripple Acquires Swiss Crypto Custody Company Metaco for $250 Million]
Through this acquisition, Ripple will expand its enterprise products, providing customers with technology to custody, issue, and settle any type of tokenized assets, signifying Ripple’s entry into the field of asset tokenization. The lawsuit between Ripple and the SEC is nearing a conclusion.

[GMX V2 Testnet Now Open]

The much-anticipated decentralized derivatives protocol GMX V2 testnet is now open to the public, and users can access it on the Avalanche Fuji testnet.

The main change in GMX V2 is that GLP is no longer used for liquidity. There are three tokens in the new trading pool: long liquidity tokens (ETH/WBTC), short liquidity tokens (USD), and different trading pairs no longer share liquidity, but can only use the liquidity in their own pools. The purpose of this is mainly to reduce systemic risk while supporting more small currency leveraged trading, but the downside is that the trade depth and deposit earnings may face challenges without global liquidity.

[Bitcoin 2023 Conference Held in Miami, Florida, from May 18–20]
Many Twitter users have been discussing how the crypto market often declines during U.S. crypto conferences. This year’s event is expected to have about 15,000 attendees, down from 35,000 last year — possibly the result of the economic downturn known as the “crypto winter”.

[MicroBT Releases Strongest Miner in History]

Bitcoin mining machine manufacturer MicroBT launched three new mining machines at the Bitcoin2023 conference in Miami today, one of which is the most powerful on the market.
The WhatsMiner M53S++ is one of the new models, offering 320 TH/s of computing power with an efficiency of 22 J/T. Yang Zuoxing, the company’s founder and CEO, said it was more powerful than Bitmain’s equivalent product, the Antminer S19 XP Hydro, which offers up to 257 TH/s but is less efficient at 20.8 J/T.
He also noted that over 90% of the heat generated by the mining machine can be collected and used for various other purposes, including heating, industrial steam, and fish farming.

[Key Recovery Feature of Ledger Sparks Market Debate]

Ledger has released firmware update 2.2.1 for the Nano X cold wallet, introducing the Ledger Recover recovery feature, an ID-based key recovery service that provides a backup for users’ private key recovery phrases. This feature requires a subscription to enable ($9.99 per month) and has raised concerns among some users about privacy and security.

The service breaks the private key recovery phrase into three encrypted shards and distributes them to three custodians: Ledger, crypto custody company Coincover, and code custody company EscrowTech. If someone loses their recovery phrase, they can merge two of the three shards (pending ID check) to regain access to locked funds.

The company fell into a deeper PR pit yesterday when its team stated in a now-deleted tweet that “technically, it has always been possible to write firmware that would aid in key extraction,” which would allow the company to extract its users’ keys. However, the company will not do so.

Subsequently, Ledger CEO Pascal Gauthier continued to refute public skepticism about the Ledger Recover recovery feature in a Twitter Space, saying “you’re saying this isn’t what customers want, in fact, this is what future customers want, this is how hundreds of millions of people will really join the crypto currency.” Ledger co-founder Nicolas Bacca said the team plans to open its code in the future so users can see how Ledger’s recovery service securely encrypts user data and runs securely at the base level. At the same time, Ledger is making its recovery service fully optional and transparent in its relationship with third-party custodians.

[Federal Versus State Regulatory Authority Becomes Key Dispute in US House Stablecoin Hearing]

At the U.S. House of Representatives’ hearing on stablecoins on May 18, state versus federal regulatory authority was a key dispute. The House Financial Services Committee’s newly established Subcommittee on Digital Assets, FinTech, and Inclusion heard testimony from five experts, with the subcommittee considering two proposed stablecoin bill drafts. The Republican bill would allow stablecoin operators to choose in which state to register, without going through the Federal Reserve. The Democratic bill pushed by Representative Maxine Waters (D-CA) retains federal regulatory authority.

[Borderless Capital and Others Jointly Launch $50 Million Wormhole Cross-Chain Ecosystem Fund]

Over 20 blockchain teams and venture funds have jointly launched a $50 million cross-chain ecosystem fund, focused on supporting and developing start-ups using the Wormhole cross-chain messaging protocol.

The cross-chain ecosystem fund is managed and operated by Web3 venture capital firm Borderless Capital. Supporters include Jump Crypto, Polygon Ventures, Aptos Labs, Solana Foundation, Sei Foundation, Algorand Foundation, CLabs (the company behind the Celo blockchain), Moonbeam Foundation, Optimism, Circle, Arrington Capital, GSR, and others.

[Grayscale, Bitwise Withdraw Recent Ethereum Futures ETF Applications to SEC]

Grayscale filed three new crypto-focused ETF applications with the SEC on May 9: an Ethereum Futures ETF, a Global Bitcoin Composite ETF, and a Privacy ETF. Several asset management firms, including Direxion, Roundhill Investments, Bitwise, and Valkyrie, also followed suit with their own Ethereum Futures ETF applications, competing to become the first company in the U.S. to launch an Ethereum Futures ETF.

However, just over a week later, Grayscale removed the Ethereum Futures ETF portion of its registration statement in a revised file on May 17, only showing proposals for a Global Bitcoin Composite ETF and a Privacy ETF; Bitwise filed a document on the same day to withdraw its application to launch an Ethereum Futures ETF.

It appears that the industry believes it is still very difficult for an Ethereum Futures ETF to get the green light from the SEC, even though the SEC opened up Bitcoin Futures ETFs in October last year. However, this seems to have to do with the SEC chairman’s view of whether cryptocurrencies are securities, as Gensler has repeatedly said that cryptocurrencies other than Bitcoin are securities and should be regulated by the SEC.

Market Viewpoints:

[Matrixport: LTC Price Nearing its Peak]

Markus Thielen, Director of Research and Strategy at Matrixport, suggested that the price of Litecoin (LTC) is nearing its peak as the third halving event of the coin’s mining reward will take place in less than 80 days. Historically, sellers often dominate the market within 50 days entering the mining reward halving. “The ideal selling point is 50 days before the halving, LTC token price fell -38%… Instead of chasing the LTC halving, traders can short when the momentum may turn low,” Thielen advised.

Due to temporarily high trading costs for Bitcoin, traders are seeking cheaper alternatives, and a branch of BRC-20 emerged on Litecoin, called LTC-20, making the Litecoin network busier than ever. As of May 10th, the confirmed transaction count and active address count on Messari hit new historical highs of 580,000 and 830,000 respectively. This is a different factor driving LTC’s recent surge apart from the halving.

[VanEck CEO Says Bitcoin Spot ETF Unlikely in the U.S. Anytime Soon]

The crypto industry has long been anticipating the introduction of a Bitcoin ETF, but according to VanEck CEO Jan VanEck, this is unlikely to happen in the next year and a half: “Even if the SEC loses the Grayscale lawsuit, they will drag their feet. So, I don’t see it happening for at least a year and a half.”

VanEck referred to the ongoing lawsuit by asset management firm Grayscale Investments against the U.S. Securities and Exchange Commission (SEC), in which it is trying to convert its Bitcoin trust into an ETF.

VanEck also mentioned the recent filings for Ethereum-based futures funds by competitor ETF companies — at least three filings were amended or withdrawn within days of initial submission.

“The SEC will delay,” VanEck stated. “They have a lot of regulatory tools.”

For a long time, the crypto industry has been hoping to launch a Bitcoin ETF in the U.S., but regulators have been reluctant to approve. Over the years, many issuers have tried for spot products. The regulators have previously rejected approvals citing reasons like market manipulation.

[U.S. CFTC Chair: BTC and ETH are Commodities, Strongly Opposes SEC Enforcement Regulation]
Rostin Behnam, Chair of the U.S. Commodity Futures Trading Commission (CFTC), mentioned in an interview that there are significant differences in the approaches to cryptocurrency regulation between the CFTC, led by him, and the SEC, led by Gary Gensler.

Behnam expressed his responsibility to protect American investors in the market for commodity-class financial assets, many of which he considers to be commodities. He pointed out that the lack of a central coordinator or a common enterprise is the reason why cryptocurrencies are not securities, unlike other commodities.

Furthermore, Behnam criticized the SEC’s approach to cryptocurrency regulation: “I am strongly against enforcement regulation. I have done my best to maintain transparency and to engage with market participants in the DeFi field.” He also said that financial innovation is in the national interest, comparing crypto innovation to other “milestone moments in market structure”, such as “the transition from floor trading to electronic trading 20 years ago.”

[Calm in U.S. Stock Volatility Market May Be Challenged on Friday]

According to data compiled by Goldman Sachs strategist John Marshall, about $1.7 trillion in derivative contracts related to stocks and indices will expire this Friday.

The concentrated expiration of options often requires traders to roll over existing positions or start new ones. This typically involves portfolio adjustments, leading to a surge in trading volumes and sudden price volatility.

Selling volatility has been popular due to the recent lack of significant fluctuations, forcing market makers to be the buyer of options (both Long Call and Long Put’s Gamma are positive), thus generally being in a “long gamma” state.

Because market makers are typically Delta Neutral, with a neutral stance on market trends; if stock prices rise, Long Gamma will cause Delta to grow larger, and if stock prices fall, Long Gamma will cause Delta to shrink. So, in a Long Gamma strategy, they have to hedge against the market, which results in smaller market fluctuations and lowers the VIX index.

[Goldman Sachs: Japanese Stocks in “Once-in-a-Decade Bull Market”]

Goldman Sachs strategist Bruce Kirk stated that the current Japanese stock market is in a once-in-a-decade bull market. Solid fundamentals are driving the rise in Japanese stocks, while the inflow of foreign capital and the wave of buybacks will further support bullish sentiment in the Japanese stock market. Currently, foreign capital has been net buying for six consecutive weeks.

Japanese listed companies have relatively healthy balance sheets. Nearly half of the largest listed companies in Japan have cash positions that exceed their debts, while less than 20% of companies in the US and Europe have net cash positions.

Rosenberg Research indicated that the average price-to-book ratio of Japanese listed companies is only 1.3, compared with 1.8 in Europe and 4.0 in the US. Just based on the valuation indicator, it is evident that Japanese stocks still have room to rise.

Following Warren Buffet’s public endorsement of Japanese stocks, hedge funds such as Point72, Citadel, Blackstone, KKR and other Wall Street giants have also visited Japan. More and more overseas capital is keen on replicating Buffett’s strategy, betting on high-dividend-yielding Japanese assets through low-cost yen financing.

However, one must pay attention to the exchange rate risk brought about by the imminent normalization of Japanese monetary policy. This year’s bull market in Japanese stocks has something to do with the depreciation of the yen, which has fallen more than 6% against the US dollar this year, while the yuan has fallen less than 2% over the same period.

The end.

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