Markets today by TradingView
Week-over-week performance:
- BTCUSD: 55,689 / -16.74% (!)
- ETHUSD: 2,508 / -24.80% (!!)
- US10Y: 3.84% / -34 bps (!)
- DXY: 102.95 / -1.61% (!)
- GOLD (USD/OZ): 2,396 / +0.25%
- SPX: 5,186 / -5.09% (!)
- NDX: 17,895 / -6.11% (!)
- DVOL: 60.98 / +22.75%
- VIX: 38.57 / +132.07% (!)
Looking Ahead – Economic Calendar:
- Wednesday, 7 August: US 10-Year Note Auction
- Thursday, 8 August: US Unemployment Claims, Fed Balance Sheet
- Friday, 9 August: DE CPI
On the macro side:
It has been an intense week that deserves some explanation.
We experienced a perfect storm of sorts, which I believe started on the macro side.
Specifically, by the Bank of Japan’s move to defend the historically weak yen.
The US employment figures certainly added to the situation, but the market moves we saw were, in my view, mainly due to crowd trades and the weekend effect (think of the short volatility positioning of market makers).
I do not believe that the tensions in the Middle East are fully priced in yet. If the situation escalates, I expect war-related assets to perform much better, leading to more market pain.
Overall, I think the market has overreacted. Some assets, such as those in the semiconductor industry, have been overvalued (e.g., the SOX/SPX rising above the dot-com bubble levels).
Chart 1: SOX/SPX
The ongoing revisions to US figures look like the Fed is playing with the markets, but in my view, the macroeconomic picture has not changed significantly.
I do not expect an emergency rate cut from the Fed, and the current Fed fund rate probabilities seem to be the result of a convexity play by bond portfolio managers given the changes in yields.
Nevertheless, the end-of-year target rate is likely to be 425-450 bps, which is 1% below the current rate.
Chart 2: Target rate probabilities for 18 December 2024: Fed meeting today vs. 1week ago
In this panic situation, I find it useful to check the CBOE Implied Correlation Index.
This index measures the diversification benefit and gives an idea of market panic, as investors start to hedge their single stocks with SPX.
Historically, a high index value has been a good bottom signal, and yesterday it hit 73.24, similar to the COVID crash level (which to some extent makes no sense to me).
Chart 3: SPX and COR3M
There may be more pain ahead, but for those with cash on hand, yesterday was a good buying opportunity.
Additionally, there is still plenty of money sitting in money market funds.
On the FX side:
As the yield spread between different countries narrows, we have seen low-yielding currencies outperform, causing the dollar index retesting the 2024 low of 102.
USD/CHF and EUR/CHF have reached levels where the Swiss National Bank has historically intervened to weaken the Swiss franc.
I previously expected the interest rate differential to decrease in the second half of the year, making the CHF more appealing.
However, this sharp decline in USD and EUR suggests a potential for a short-term reversal.
I expect the DXY to trade around the 103.5 area.
Chart 4: DXY 1d
On the crypto side:
Crypto suffered significantly once again, with ETH/USD trading at a low of USD 2,116, wiping out all year-to-date gains.
This downturn was driven by i) macros ii) Jump & Paradigm VC iii) leverage.
On the desk and in the market, we continue to see more interest in BTC than in ETH.
The ETH/BTC ratio dropped but was only rejected at 0.04, which is 11% below the current level.
Futures open interest has not recovered yet, and the basis remains low.
The longer we stay below the USD 58,000-USD 60,000 range in BTCUSD, the more likely a further decline becomes, as miners may be forced to sell.
In the options market, ETH’s optionality remains richer than BTC’s, but this time it is skewed to the downside.
While ETH options are often used to protects alts, this seems excessive to me.
Looking at the BTC/USD chart, USD 52,000 is the key support level to hold, with USD 59,000 as the resistance.
A drop below USD 52,000 could be damaging this time, but a catalyst for such a move lower is needed (here I am thinking of an overnight escalation of the war).
Chart 5: BTCUSD 1d
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