Global Capital Market Daily Recap & Outlook-20230516

Today’s overall market sentiment is risk-on: stocks are up, digital currencies are up, government bonds are down, oil is up, and the U.S. dollar is down.

The interest rate market sentiment is positive, with the 1-month government bond yield holding steady at 5.73%; the 3-month government bond yield has dropped significantly from 5.3% to 5.17%; the 2-year government bond yield is generally maintained at around 4%, while the 10-year government bond yield has risen 3 basis points to 3.5%.

Regional bank short-covering led the U.S. stock market higher, despite the lack of new catalysts in the sector.

SPX +0.30% to 4136, NDX +0.55% to 13,414

Sectors: Materials +0.85%, Financials +0.82%, Technology +0.74%, Utilities -1.24%.

The Nasdaq Golden Dragon China Index (HXC) rose 4% to a near four-week high, with AI concept stocks rebounding

13F filings show that famed short seller Michael Burry bought heavily into regional banks in the first quarter. Seven of the fund’s 21 total stock positions are in financials, mostly troubled regional small banks and/or credit card companies like CapitalOne, Western Alliance, Pacwest, First Republic, and Huntington Bancshares, besides Wells Fargo.

Unfortunately for Burry, FRC has gone to zero, costing him about $2 million on this bank if he hadn’t sold in April.

The rise in the stock market has supported a broader range of risk assets such as oil and commodity currencies. Notably, supply-side tensions due to OPEC+’s continued production cuts, along with speculation that the U.S. will resume oil purchases in June to replenish strategic reserves, have led to a simultaneous rise in international oil prices, hedging concerns about slowing growth and oil demand in major economies. WTI crude oil rose more than 2% intraday to close at $71.11 per barrel, stopping a three-day decline and nearly recouping last Friday’s losses.

Meanwhile, a disappointingly bad New York Fed manufacturing index and debt ceiling concerns limited the gains in risk assets, with the market retreating throughout the afternoon.

The U.S. New York Fed’s manufacturing index for May was -31.8, compared to an expected -4 and previous value of 10.8. The leading new orders sub-index fell from 25.1 last month to -28, with other sub-indices changing little.

House Speaker McCarthy is not satisfied with the progress ahead of tomorrow’s meeting, despite the White House’s optimism over the weekend. The Washington Post reported over the weekend that while the market expects the U.S. will not default, some companies are preparing: by selling short-term bonds and corporate bonds maturing around June 1, when the government may run out of cash, and buying safer money market funds, even though they offer lower returns, to pay wages.

The signals on interest rate policy released by Federal Reserve officials are mostly hawkish, with many officials believing that observation and waiting are the appropriate policies:

This year’s voting member, Chicago Fed President Goolsbee, said that supporting a rate hike in May was a difficult decision for him. He suggests maintaining caution and patience in times of heightened uncertainty, as the impact of rapid rate hikes has not yet fully manifested. He will be looking for signs of credit stress and remains optimistic about inflation.

Also a voting member this year, Minneapolis Fed President Kashkari said that although inflation has come down from its peak, it is still too high, and there is “a long way to go” to return to the 2% inflation target.

Next year’s voting member, Atlanta Fed President Bostic, also cited high inflation as a reason, predicting that there will be no rate cuts before 2024. Instead, he is inclined to “raise rates a bit more this year, rather than cut them”.

This year’s voting member Barkin said that if inflation continues or even accelerates, he sees no obstacle to raising rates. He noted that policymakers should be sensitive to financial stability risks, but should not put them above fighting inflation.

Bitcoin saw a significant increase after the U.S. open, rising from the weekend’s 26900 line to a high of 27,600 U.S. dollars; Ethereum rose from 1800 U.S. dollars to a high of 1845. However, both fell back in the afternoon U.S. session.

Lido’s governance token LDO soared 11% to 2.15 U.S. dollars, as Lido’s V2 upgrade today will enable ETH withdrawals for the first time. Currently, there are 6.27 million ETH staked in LIDO, close to 30% of the total staked, and no large withdrawals have been seen since the opening half day.

Since the official opening of withdrawals on the ETH2.0 network, there was a net withdrawal status until the end of April, mainly due to withdrawals from the original staking business of the three major exchanges. By May, the withdrawal pressure had significantly reduced, with net deposits evident and the staked amount increasing from 18.84 million to 19.32 million ETH. Currently, stakers have to wait almost a month to become network validators on Ethereum, while exiting validation no longer requires queuing and takes only a few minutes.

Today’s focus:

● China’s April retail sales of social consumer goods and value added of industries above designated size.

● Speeches by the New York Fed President and the Cleveland Fed President.

● U.S. April retail sales.

● Eurozone Q1 GDP.

Other macro news includes:

【Uncertainty from Turkey】

Investors are also keeping an eye on the results of the first-ever second-round presidential election in Turkey’s history, scheduled for May 28th. Incumbent President Erdogan and his main challenger, Ekrem Imamoglu, both failed to win more than half of the votes in the first round. The two will go to a second round of voting on May 28th, and the two-week period of uncertainty between the two rounds of voting is a situation that the market dislikes the most.

The US dollar is nearing its all-time high against the Turkish lira, set on March 10th, amid the uncertainty, causing the Turkish stock index to fall by more than 6% and triggering a market halt. BBVA, the European bank with the largest exposure to Turkey, fell by over 4%.

【U.S. Household Loan Default Rate Rising, Excessive Savings Continues to Decline】

The New York Fed announced today that the total debt of U.S. households has surpassed $17 trillion for the first time in history, but credit card debt remained flat quarter-on-quarter, not falling in Q1 for the first time in 20 years (since Q4 typically sees overconsumption due to the holiday shopping season followed by reduced spending in Q1). This suggests that in the face of rising prices, households are under significant economic pressure and are increasingly relying on credit cards to maintain their lifestyles and cover their expenses. Additionally, the overall default rate was 2.6% in Q1, still near a historic low, but the proportion of delinquent debt at least 30 days past due is growing across most types of loans, including credit cards and auto loans.

Also noteworthy is a set of data released by the San Francisco Fed last week showing that Americans’ excess savings are still rapidly declining:

The current balance is only $500 billion, down from a peak of $2.2 trillion in 2020. At the current rate of nearly $100 billion per month, these savings are expected to run out by Q4 of this year. We have previously mentioned that this buffer has kept consumer spending robust and kept signs of a recession at bay in the U.S. But when this balance bottoms out, people’s consumption habits may change, and the number of people willing to look for work may increase, potentially significantly easing the tightness in the labor market.

It’s also worth noting that there’s no standard method for separately calculating excess savings, so different sources may have slightly different figures. The New York Fed’s method here is to calculate the cumulative difference between actual personal savings and the trend implied by the data from the 48 months prior to each recession, as defined by the NBER.

【Net Short Positions in U.S. Treasury Futures Hit a New Record Low Last Week, with 2.39 million contracts, equivalent to $2.39 trillion.】

However, a Bloomberg survey shows that if a default were to occur, U.S. Treasuries would be a suboptimal option (Bitcoin unexpectedly became the third most popular asset):

And, a survey by JPMorgan of professional clients also indicates that bond prices might rise (yields fall) in case of a default…

【JPMorgan Client Survey: If U.S. Treasury Technically Defaults, 2-Year Treasury Yields May Fall】

Other crypto news includes:

【BNBCHAIN DEX Weekly Trading Volume Increases for Fifth Consecutive Week, Reaching a New Yearly High】

Pancakeswap contributed more than 95% of the trading volume.

The launch of version 3 might have helped with the trading volume, plus there are many MEMEcoins on BSC. ETH — $8.8 billion, BSC — $5.1 billion, Arb — $2.5 billion, Polygon — $880 million, OP — $280 million, Avalanche — $260 million, Aptos — $3.5 million.

【Listed Crypto Investment Funds See Outflows for Fourth Consecutive Week】

CoinShares reported on Monday that digital asset investment funds saw net outflows for the fourth consecutive week, with $54 million flowing out in the seven days ending May 14. The outflows coincided with a sharp drop in cryptocurrency prices last week, including Bitcoin falling from over $28,000 on Wednesday to below $26,000 later on Friday.

Bitcoin-related products accounted for $38 million of the outflows. Bitcoin outflows over the past four weeks now total $160 million, accounting for 80% of all cryptocurrency outflows during the same period.

【Bitcoin Cash Rises on “CashTokens” Upgrade】

The upgrade, which includes the launch of the token issuance feature CashTokens and support for smart contracts, allowing developers to build DApps on BCH, was successfully completed today. BCH prices temporarily rose by 6% but have since given back all gains. So far this year, BCH has risen 20%, trailing BTC and ETH.

【Paul Tudor Jones: Bitcoin’s Attraction as an Inflation Hedge Not as Strong as Before】

Legendary hedge fund manager Paul Tudor Jones said today that Bitcoin’s appeal as a hedge against inflation isn’t as strong as it used to be, due to a hostile regulatory environment in the U.S. and his expectation that inflation rates will decrease in the future. He said, “Bitcoin has a real problem because there’s a whole regulatory agency in the U.S. against it”.

Jones revealed that he still holds a small stake in Bitcoin, but its appeal has diminished. He also believes that the Federal Reserve has ended its rate hikes and that the central bank may be “doing too much” to fight inflation.

【Animoca Plans Second Early-Stage Venture Fund】

James Ho, head of the $100 million fund Animoca Ventures, told The Block in an interview that the web3 gaming field is being affected by a general decline in the prices of tokens issued by its developers, but it is still attracting some of the best and most experienced gaming veterans. Ho added that Animoca Ventures is currently trying to raise its second early-stage venture fund and said that some “major Japanese gaming device manufacturers” have expressed interest. The first $100 million fund was launched in May 2022 and focused on seed and Series A investments in the crypto gaming field, with 10% of its capital allocated to NFTs.

【Crypto Market Primary Financing Bounces Back in April】

Outlier Ventures released its April crypto financing report, with key points:

Projects

-There were 50 Pre-Seed to Series A financings in April, up from 38 financings in March.

-The total financing increased from $304 million in March to $323 million in April, a growth of 6.5%.

-Infrastructure financing accounted for more than 25%, up from slightly more than 10% in March.

-Financing rounds for DeFi and Web3 slightly declined, while NFT remained stable.

Institutions

-Three funds raised a total of $430 million in April, including: Bitget — $100 million, Re7 Capital — $100 million, and Theory Ventures — $230 million.

-The most active early investors in April were DWF Labs, HashKey Capital, and The Spartan Group.

ICO

-There were 18 noteworthy ICOs in April, a third of which were related to gaming, including some of the largest ICO projects.

-The Delysium ICO raised a total of $14 million, making it the largest ICO project this month.

• The Yesports ICO raised more than $6 million, making it the second-largest ICO project this month.

The end.

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