SignalPlus Macro Analysis (20240403): Risk aversion continues to intensify, with stocks, bonds, and cryptocurrencies all declining

The risk aversion sentiment that began the previous day continues to intensify, with stocks, bonds, and cryptocurrencies all declining. On the policy front, Federal Reserve officials are consistently retracting Powell's dovish comments from the March FOMC meeting, with Loretta, Mester, and Daly all attempting to withdraw any expectations of an imminent rate cut.

The actions of the Federal Reserve are not surprising; in addition to the previously mentioned persistently high inflation data, Citigroup's Global Economic Surprise Index has also risen to a one-year high due to ongoing strong economic performance.

Bond investors may be starting to feel uneasy, as the MOVE bond volatility index saw a significant rebound from its lows yesterday, while the 10-year yield is approaching 4.50%. The likelihood of a rate cut in June currently seems to be a toss-up. Furthermore, despite market expectations for a rate cut, corporations continue to flood the issuance market to lock in borrowing rates, with approximately $20 billion in new debt expected this week and potentially reaching $100 billion this month, an increase of over 50% compared to the same period last year.

In terms of risk aversion, oil prices have quietly rebounded to around $85 per barrel, a 20% increase this year, which may be a key CPI indicator that consumers are genuinely concerned about. Additionally, despite Powell's dovish shift and the rise of assets like gold and BTC that move in the opposite direction, the dollar has still unusually appreciated against most major currencies (due to European inflation falling short of expectations, the Bank of Japan exiting its zero interest rate policy, and China's economic woes), putting significant depreciation pressure on currencies like the yuan. As the market remains worried about the state of the Chinese economy, the forward points for the yuan have already surpassed the worst levels of 2023.

In the stock market, in addition to the gradually weakening expectations for rate cuts, the index is also weighed down by Tesla (-7%), which reported a dismal first-quarter performance that fell significantly short of expectations, with a sharp decline in vehicle deliveries (-14%), concerns over factory shutdowns, increased inventory, and intensified competition from BYD and other Chinese automakers exacerbating negative sentiment around the stock. As the market "catches up" with the changes in rate cut expectations, will the SPX perform poorly in April? Or will we enjoy another quarter of prosperity?

Speaking of risk aversion, cryptocurrency prices have plummeted, with BTC dropping from 69k to a low of 64.5k yesterday, resulting in nearly $400 million in futures positions being liquidated within 18 hours. The decline, as always, occurred during the Asian trading session, possibly in response to the ETF net inflow data (-$86 million) released after the U.S. market close, combined with the fact that Asian investors primarily held long positions.

Due to this wave of stop-losses, future positions should become clearer, and perpetual funding rates have also dropped significantly. As the momentum of spot prices weakens considerably, the short-term skew of put options has intensified.

Volatility may continue for a while in the short term. Blockchain analytics firm Arkham reported that a wallet under government control has been activated and executed several test transfers to Coinbase, likely signaling a larger transfer. The U.S. government may be selling tokens to exchange for fiat currency. Additionally, ETF issuer Proshares has launched several leveraged Bitcoin ETFs (BITU and SBIT) aimed at retail investors—enjoy!