Cross Asset Everything Rally. After plenty of blockbuster action… | Posted by Fractal_Monk | Coins | November 2023
After last week’s blockbuster action, this week has been much quieter in terms of data releases.
Buoyed by last week’s favorable data and messaging from the Fed (on balance the data was dovish; markets were hung up on Treasury refunds and NFP printing), the market was pricing in the possibility of further rate hikes with the view that the hiking cycle was over. reflected. Hiking. Long-term bonds rallied, enjoying their best week in a decade since the SVB collapse earlier this year. Stocks are up ~6% as SPX hits 4400. Small-cap stocks found some relief this week, with the Russell 2000 bouncing back ~7.5% last week. Credit (corporate bonds) also rebounded, with both investment grade and high yield indices rising in WoW. The dollar fell by the largest amount since July due to falling U.S. interest rates and the reduced possibility of an interest rate hike, and nothing eases financial conditions like a fall in the dollar.
Wednesday’s healthy Treasury auction provided an additional tailwind to the rally, but Thursday’s 30-year auction only gained 5 basis points and risk aversion returned to the market as all assets fell. DXY bounced back to 105.9. Thursday’s poor auction is more subtle than simple lack of demand. The hack of ICBC’s U.S. division (ICBC is the world’s largest bank by assets) created massive problems clearing a significant portion of its U.S. Treasury transactions. The issue was widely publicized and risk appetite returned to the market on Friday.
The Federal Reserve will seek to ease these financial conditions and counter the market’s desire to price interest rate cuts in the coming months as real economic indicators continue to show signs of increasing stress. Powell attempted a hawkish tone in his speech on Thursday, which combined with a weak 30-year auction led to a pullback in the cross-asset rally. Whether the rally continues further will depend on market sentiment and the message from the data coming in with next week’s CPI release.
Geopolitical risk premiums due to Israel’s Hamas war have fallen in oil markets. Hezbollah says he does not want to wage an all-out war with Israel and that he just wants to tie up IDF resources. This has reduced the likelihood of the conflict escalating and has been weak for crude oil prices (the more Hezbollah expands, the more likely a direct conflict with Iran becomes). Oil is also responding to China’s slowing economic growth due to sluggish domestic demand. China is the largest importer of crude oil, so its crude oil demand is greatly exceeded and cooling. Saudi Arabia has tried to maintain prices through supply cuts, but has been unsuccessful due to abundant supplies from the United States and continued crude supplies from Russia, Iran and Venezuela. Brent crude fell below 80 for the first time since July, before the losses began.
Favorable macro tailwinds from the cross-asset rally combined with ETF approval optimism led to another good week for cryptocurrency assets. Bitcoin has reached the upper part of the 35-37,000 band and is trying to break above that.
Ethereum
ETH surged this week, surpassing $2000 after Blackrock’s ETH ETF plan was finalized. ETH was higher against the BTC pair, rising in the 0.5 region, while Bitcoin dominance retreated to ~52.6%. BTC should consolidate while ETHBTC moves higher and dominance lower to reallocate capital into altcoins for a broad-based altcoin season.
Solana
The Sol rally we saw last month continued to push the price above the $30-45 weekly range. If this range can consolidate and turn into support, the rally could expand further. The talk about Sol has been strong, with the monolithic stack seen as the winner in the monolithic vs. modular scaling debate.
