SignalPlus Macro Analysis (20240125): BTC Spot ETF Trading Volume Hits Record

The People's Bank of China lowered the reserve requirement ratio, U.S. PMI exceeded expectations, the results of the 5-year U.S. Treasury auction were less than ideal, risk sentiment improved, and U.S. interest rates slowly rose.

At a press conference for the Central Economic Work Conference, PBOC Governor Pan Gongsheng announced that the reserve requirement ratio would be lowered by 50 basis points on February 5, and broader market stabilization measures would be introduced. The governor chose to convey this information during market trading hours, which surprised the market somewhat. Additionally, the PBOC announced the establishment of a "Credit Market Department," specifically responsible for five key areas: technology finance, green finance, inclusive finance, pension finance, and digital finance. Regardless of whether the PBOC can exert influence and promote targeted loan growth in specific areas, Chinese policymakers seem to be seriously enhancing their determination to support the market.

In the North American market, the release of the U.S. January PMI coincided with the Bank of Canada's interest rate decision. Manufacturing data strengthened, and although the Bank of Canada kept interest rates unchanged, it still expressed concerns about persistent inflation, putting continued pressure on bonds. The U.S. manufacturing PMI rose from 47.9 to 50.3, mainly due to an improvement in new orders (from 47.1 to 52.3), while the services PMI also unexpectedly increased by 1.5 points. South Korea's semiconductor export year-on-year growth rate is typically a leading indicator for global PMI, and the recent rebound in South Korean semiconductor exports suggests a continued recovery in manufacturing.

Although the Bank of Canada decided to keep interest rates unchanged and removed explicit tightening bias from its statement, they added a key paragraph stating that "the committee remains concerned about the inflation outlook, particularly worried about the persistence of inflation," which added further pressure to the later 5-year U.S. Treasury auction.

It turned out that the $61 billion 5-year U.S. Treasury auction was difficult for the market to digest, tailing +2 basis points, with a bid-to-cover ratio of 2.31, significantly below the average of 2.52. All indicators showed weak performance, with many metrics even close to 6-month lows, and the auction results pushed yields up by another 5 basis points. Additionally, since the beginning of the year, the decline in bonds has effectively eliminated about 25 basis points of rate cut expectations, with pricing for rate cuts in 2024 dropping from 150 basis points at the beginning of the month to "only" 125 basis points.

Furthermore, the Federal Reserve announced that the emergency lending program BTFP (Bank Term Funding Program), launched last year, will officially expire on March 11. Some banks have borrowed funds from the system as OIS rates declined and re-deposited them for interest rate arbitrage, causing the usage of this program to recently surge to its highest point. As the saying goes, "never waste a good crisis," and investment banks are undoubtedly experts at remembering this advice.

The stock market closed slightly higher, giving back some of the early gains from China's stimulus plan. Although Tesla's earnings were below expectations, energy and large tech stocks led the gains again. Tesla's earnings, revenue, and gross margin were all below expectations, and the company warned that sales growth in 2024 could "significantly" decline. The next two weeks will see the peak of earnings season, coinciding with the release of a series of important macro indicators at the end of the month.

In the cryptocurrency space, the launch of the spot ETF has broken many trading volume records just 8 days in, and winners have emerged, with Blackrock and Fidelity's products capturing over 60% of the market share outside of GBTC.

However, market sentiment remains subdued, with the cumulative outflow from GBTC almost entirely offsetting the total inflow from the other 9 ETFs. Additionally, GBTC's trading volume (not purely trading activity) has been shrinking over the past few days, and the open interest in BTC futures has also significantly decreased, as some trading activity may have been cannibalized by the spot ETF. In summary, the market continues to overcome short-term capital outflows while lacking positive incentives, and prices may continue to pull back in the short term.