Overview: Stocks rise, cryptocurrencies rebound, short-term bonds rise while long-term bonds fall, crude oil rises, the dollar strengthens, and gold remains steady.
SPX +1.19% to 4,159
NDX +1.22% to 13,589
DJI +1.24% to 33,420
RUT +2.21% to 1,774
The S&P 500 is approaching the erasure of its losses since May 1, the Dow Jones is at its highest point in a week, and the Nasdaq has returned to its highest level since August 25 last year. All 11 sectors in the S&P 500 saw gains, with finance, energy, and discretionary consumption all rising by more than 2%, while industrials, real estate, IT/technology, and telecommunications services increased by more than 1%. The defensive utilities sector performed the worst, falling by 0.36%.
Long-term US Treasury yields expanded their gains during US stock trading, with short-term Treasury yields falling, indicating that the market is downplaying the risk of default.
The yield on the more monetary policy-sensitive two-year note rose by more than 10 basis points to 4.17%, marking a four-day gain to a more than three-week high since April 24.
The 10-year Treasury yield erased its pre-market drop, with a maximum increase of nearly 4 basis points to approach 3.59%, marking a four-day rise to its highest level since May 1. The yield on the 30-year long bond continues to hover at its highest level in over two months since March 9.
Ultra-short-term Treasury yields continue to fall, with the one-month rate dropping from 5.55% yesterday to 5.4%.
The cryptocurrency BTC rebounded 1.4% to just above 27,400, while Ethereum’s rebound was weaker, closing almost at the same price as yesterday. Other mainstream cryptocurrencies worth noting include SNX +12%, LDO+7%, OP+9%, SSV+8%, PEPE-6%, and AGI+85%.
Main driving forces:
U.S. stocks rose across the board due to optimism surrounding debt ceiling negotiations and a more optimistic consumer earnings report. Risk appetite was supported, and the recently vulnerable regional bank sector was also supported after Western Alliance reported encouraging news of deposit growth.
Financial stocks led the gains, with the KBW Bank Index (BKX) rising over 5% and the KBW Regional Bank Index (KRX) rising over 7%. PacWest, which fell more than 14% yesterday, rose more than 21%, while Western Alliance rose more than 10%. It’s worth noting that short positions in financial stocks are now crowded, making rebounds potentially violent, but the trend may not necessarily continue, as deposit outflows remain a long-term issue.
The U.S. dollar strengthened amid rising U.S. yields and optimism about debt ceiling negotiations, but gains were limited by rising risk appetite and mixed building permit and housing start data.
U.S. President Biden said he believes the U.S. will not default and is confident a budget agreement will be reached. He added that both parties will come together because there is no choice, with negotiations focusing primarily on budget issues. U.S. House Speaker McCarthy said he is optimistic about the ability to cooperate and reaching a debt ceiling agreement by Sunday is feasible. On Wednesday, Democratic House members began collecting signatures to raise the debt ceiling through a so-called “discharge petition,” a parliamentary strategy aimed at bypassing the Republican House leadership and forcing a vote. Initiating this petition process would bypass Republican leaders like McCarthy, pushing for a debt ceiling bill vote directly.
U.S. housing starts and building permit data met expectations, but both fell significantly compared to the same period last year. Real residential investment growth in the second quarter increased from -6.3% to 0.6%.
The Atlanta Fed’s GDPNow tracking indicator rose from 2.6% yesterday to 2.9%, its highest level since Q1 2022. GDP growth over the past two quarters was only 0.9 and 1.6, showing that the current economic momentum is accelerating rather than slowing down.
U.S. President Biden said he would meet with Chinese President Xi Jinping at some point, but not necessarily soon.
There are no important Fed officials speaking today, with the market waiting for Powell and Bernanke’s joint speech on Friday.
[SEC asks Grayscale to withdraw Filecoin Trust’s application to become a registered listed entity]
Grayscale said in a press release that it received a comment letter from the SEC stating that FIL “meets the definition of a security.”
Form 10 is a form required by the U.S. Securities and Exchange Commission (SEC) for companies to register securities publicly traded outside of an exchange. This registration typically applies to companies not listed on an exchange but wishing to sell their securities to the public.
Submitting a Form 10 registration makes a company an SEC reporting company, requiring the regular submission of financial and other important information, including annual reports (Form 10-K), quarterly reports (Form 10-Q), and significant event reports (Form 8-K).
In addition, Form 10 registration can make it easier for a company to attract investment, as investors are generally more willing to invest in companies that provide regular, transparent financial information. However, this also means that companies must comply with stricter regulatory requirements and public disclosure rules.
Grayscale currently voluntarily reports Form 10 for its BTC and Ethereum Trust products without encountering SEC rebuttals, but not for smaller crypto products.
The SEC’s comment on FIL being a security triggered a brief 3% drop in FIL before rebounding, now recovering all losses. Due to limited investment channels for U.S. stock investors in Filecoin, FIL’s trust currently has a premium of over 200% compared to NAV.
[DYDX discusses creating more subDAOs to make ecosystem management more decentralized]
DYdX is a decentralized platform known for its perpetual contracts and is now discussing creating more subDAOs to make the management of the ecosystem more decentralized. A post by Australian marketing agency Fox Labs Digital suggests distributing oversight responsibilities to several smaller decentralized autonomous organizations (DAOs).
Discussions about going beyond the current two subDAOS — one for dYdX’s grant program and the other for its operational activities — emerged late last year with the aim of making the dYdX protocol a “fully decentralized version.”
[USDC Issuer Circle moves $8.7B to repos to protect reserves from U.S. government default]
As of May 16, the Circle Reserve Fund, managed by global investment management giant BlackRock, added $8.7 billion in overnight repurchase (repo) agreements to its portfolio and no longer holds any U.S. bonds maturing after May 31.
[Bitcoin Frogs leap]
According to data site CryptoSlam, the Bitcoin chain NFT series Bitcoin Frogs surpassed Bored Apes to become the NFT series with the highest trading volume in the past 24 hours, generating over $2 million in trading volume in nearly 700 transactions, with prices rising from tens of dollars in April to nearly $4,000 currently. Currently, three of the top ten in the trading leaderboard are Bitcoin NFT series.
[CoinDesk: Debt Crisis is Good for BTC]
A U.S. default would drastically reshape the global financial system, potentially enhancing Bitcoin’s role as global financial infrastructure. This is another example of Bitcoin theoretically hedging against catastrophic scenarios: What is favorable for Bitcoin is often extremely detrimental for human society.
In an environment of rising default rates, Bitcoin is likely to find significant support as a neutral monetary layer, not constrained by sovereign debt risks. The debt debacle highlights the advantages of Bitcoin as a global reserve and trade tool.
[MS: BTC price repeats the previous 2017/18 price cycle]
Morgan Stanley: As banks stop providing dollar crypto trading services, trading volumes on U.S. cryptocurrency exchanges are declining, and one of the largest retail exchanges, Coinbase, has already received notice from Wells. It’s surprising that Bitcoin’s price remains strong given the escalating regulatory crackdown.
Note: After peaking in 2017, BTC’s price fell to just over $3,000 and rebounded to over $12,000 in 2018–19.
[JPM: U.S. recession is nailed on, betting on the Fed lowering interest rates by the end of the year is right]
JP Morgan Asset Management suggests an impending U.S. economic recession is almost a given. As economic growth loses momentum, the Fed may lower interest rates in Q3: “The market is right to bet on lower interest rates; inflation rates are too high, and an economic recession is needed to pull them down; pressure on the U.S. banking industry only makes an economic recession more likely; the Fed will execute a policy shift as early as September to address slowing economic growth.
[JPM: Traders are in a bind]
Ron Adler from JP Morgan sums up recent market sentiment: Traders find it increasingly difficult to be optimistic about stocks, but it’s equally difficult to be pessimistic about any large-cap companies. The performance of large-cap companies’ stocks is supporting the broader market, showing resilience, which frustrates short-sellers.
[JPM Customer Survey: 79% of clients believe that the debt ceiling will be raised at the last moment for a short term, and only 15% believe it will be raised for a long term in one go]
[Tether promises a 15% profit to buy BTC, making a profit of $1.5 billion in the first quarter]
Tether, the largest company in the crypto circle by reserve asset volume (Binance disclosed assets of $60B+, Tether has $80B+), announced that from this month, Tether will regularly allocate up to 15% of net realized operating profits to purchase Bitcoin (BTC).
Tether expects its current and future BTC holdings in its reserves not to exceed the shareholder capital buffer and will further strengthen and diversify its reserves.
The shareholder capital buffer contains assets held by the company in excess of its liabilities, protecting the company from potential losses, and can be understood as the company’s net assets. This means that the BTC reserve portion will not be calculated into USDT’s liabilities, theoretically even if BTC goes to zero it will not affect USDT’s redemption.
Tether’s Q1 2023 report shows that by the end of March 2023, Tether had about $1.5 billion of BTC in its reserves.
Tether’s Q1 2023 net profit was $1.5 billion. Theoretically, the income their reserves could bring at market interest rates would not exceed $600 million, so the remaining nearly $1 billion should all be application and redemption fees. As Tether charges 0.1% fiat money deposit and withdrawal fees, so reverse calculation implies Tether handled $1 trillion of applications and redemptions in Q1. According to CoinGecko data, in Q1 2023, the spot trading volume of the top 10 cryptocurrency exchanges was $2.8 trillion, of which Binance accounted for about 60%, i.e., $1.68 trillion. But Binance’s spot trading fee is much lower than Tether’s, so in some sense, Tether is also the biggest exchange in the crypto circle.
[Wall Street bigwig Steve Cohen: AI will boost corporate profits, very bullish on the market]
In the face of widespread skepticism about the rise in U.S. stocks, billionaire, Wall Street bigwig, and hedge fund Point72 founder Steve Cohen says investors are overly worried about a market downturn and excessive focus on the chances of a recession may cause them to miss the “big wave” opportunity brought by AI.
“I’m making a prediction — we’re on the rise. I’m actually very bullish on the market,” Cohen said at a private event on Tuesday.
While Cohen acknowledges he’s concerned about the types of jobs that will be replaced, he also believes that the emerging field of AI could create new job opportunities. Cohen anticipates an increase in corporate profit margins, which would offset the pressure of the Fed raising interest rates to curb inflation. And the increase in corporate profit margins would boost market performance.
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