SignalPlus Macro Analysis (20240322): Global Central Banks to Begin Rate Cut Cycle

Following the Federal Reserve's dovish stance yesterday, the Swiss National Bank unexpectedly became the first major central bank to cut interest rates, which may mark the beginning of a year of rate cuts for developed economies. The Bank of England quickly followed suit, achieving its own "dovish hold" with a vote of 8 to 1, and the committee expects CPI to be "slightly weaker than" anticipated, while the possibility of a rate cut by the Bank of England in June has risen from 65% to 80%. After the positions were announced by the Federal Reserve, the Bank of England, and the Swiss National Bank, the likelihood of a rate cut by the European Central Bank in June also approached 80%. Given the sluggish economic growth, both the Bank of Canada and the People's Bank of China are also clearly leaning towards a more accommodative stance.

On the other hand, Japan remains an outlier, being the only central bank in the current cycle to raise rates, with its stock market, real estate market, and wage growth surpassing most of its peers. Interestingly, despite foreign direct investment and inflows being the main drivers of the market over the past 18 months, foreign capital sold off a significant amount of stocks in December due to concerns over the Bank of Japan's exit from negative interest rate policy. However, the TOPIX/Nikkei index was hardly affected and continued to reach new highs around the time of the Bank of Japan's rate hike. A similar situation occurred in September when signs of policy changes emerged, leading to accelerated capital outflows, but by October, the situation reversed completely, and the market remained unaffected. Will a similar pattern repeat in the near future?

Additionally, the latest monetary survey from the Bank of Japan reveals some interesting information: Japanese households hold an astonishing 1,000 trillion yen (approximately 7 trillion USD) in cash and savings accounts, accounting for about 53% of household financial assets, far exceeding the United States (13%) and Europe (36%). Furthermore, the stock investment value of medium-sized households has increased by about 30% year-on-year, with 1 in 10 households earning over 6 million yen in capital gains, equivalent to a year's income. As people's attitudes toward stock investment, real estate purchases, wage inflation (the largest union wage increase in 33 years), exiting negative interest rate policies, and ongoing generational wealth transfer finally change, how they will utilize the 7 trillion USD cash surplus will be one of the most important macro narratives in the coming years. Is there a possibility that they may develop an interest in diversifying into cryptocurrencies?

Back in the United States, the stock market continues to reach new highs (thanks to the Federal Reserve!). Economic data indicates that lower mortgage rates seem to be positively impacting the real economy, with a significant increase in existing home sales. In addition to strong overall data performance, housing supply and median prices (up 0.5% month-on-month) also show good growth, returning to pre-pandemic levels. The Fed's rate cuts are expected to further boost demand in the second half of the year.

In the stock market, the S&P 500 index has risen for four consecutive days, reaching a new historical high. Although Apple's stock price fell by 4% due to the U.S. Department of Justice suing for antitrust violations related to the iPhone, it did not affect the index's rise. On the other hand, with investors optimistic about its vision of providing vast training data for AI models, Reddit's stock price soared over 67% on its first day of trading, ultimately closing up 48%. The success of this IPO may open doors for a large number of private companies hoping to go public amid high market sentiment.

In the cryptocurrency space, as ETF demand slows, BTC is heading towards its worst-performing week of the year, with the market tone appearing somewhat bleak. After setting a series of single-day inflow records in mid-March, BTC ETFs have seen a significant net outflow over the past 3-4 days, while BTC price momentum has slowed, barely maintaining above 65,000 USD.

Additionally, the U.S. SEC may be reverting to old patterns. Forbes reports that the Ethereum Foundation is facing a confidential inquiry from an unnamed "national authority." Developers indicated in commits submitted to GitHub that "this commit removes part of the footer because we received a voluntary inquiry from a national authority and were asked to keep it confidential," and the website has removed a statement that the foundation has never been contacted confidentially by any global national agency.

This confidential inquiry comes at a delicate time, with indications that ETH ETFs may not receive SEC approval in May, as the agency still insists that ETH is a security. Consequently, ETH prices have fallen, and the Grayscale Trust's ETH discount has widened from -10% to -18%.

In summary, the recent frenzy in the cryptocurrency space seems to have subsided. As the market re-establishes its footing, we may see sideways adjustments in the coming days.