Macro Report for August Global Safe Haven Sentiment Rises, Short-Term Pressure on Risk Assets in Cryptocurrencies.
August Macro Report Global Safe Haven Sentiment Rises, Short-Term Pressure on Cryptocurrency Risk Assets.
From the U.S. economic data released in August, the U.S. economy, which is like a speeding locomotive, finally showed some signs of slowing down.
The year-on-year increase in U.S. CPI in July was 3.2%, ending the continuous 12-month decline, with an estimated value of 3.3% and a previous value of 3.0%; the year-on-year increase in U.S. core CPI in July was 4.7%, with an estimated value of 4.8% and a previous value of 4.8%. While CPI has increased, it is still lower than market expectations, indicating that the Fed’s interest rate hikes are effective.
In terms of employment, the U.S. labor market also showed some signs of slowing down. The number of new jobs added in the non-farm sector in the United States in July was 187,000, lower than market expectations. In terms of hourly wages, the average hourly wage growth in the second quarter was 4.5% year-on-year, slightly lower than the 4.8% in the previous quarter. The latest salary tracking data from job search website Indeed shows that the annual wage growth rate in job advertisements on the website is 4.7%, lower than 5.8% in April and 8% in July last year. The labor market has always been an important reference for the Fed’s interest rate hikes, as wages and prices often rise in sync. The current decrease in wage expectations undoubtedly puts the labor market on the side of the Fed.
Similarly, the initial value of the Markit Services PMI for August in the United States was 51 (expected 52.2, previous value 52.3); the initial value of the Markit Manufacturing PMI for August was 47 (expected 49.3, previous value 49). Manufacturing is contracting, and the expansion of the service industry is also below expectations.
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Many economic indicators indicate that the U.S. economy has slowed down this month. However, economic data for a single month is not enough to determine the medium- to long-term trend of the economy, and the strength of the U.S. economy is still relatively high. Powell also made hawkish remarks at the Jackson Hole meeting, stating that given the strong performance of the U.S. economy, further interest rate hikes may be continued.
Institutions have different opinions: the Atlanta GDP model predicts that the U.S. economy will grow by 5.8%, but Fitch Ratings has downgraded the U.S. credit rating.
The Atlanta Fed’s GDPNow model predicts a 5.9% growth rate for the U.S. GDP in the third quarter based on currently available data. However, the market believes that the data used in the model’s predictions (such as July retail sales, car sales, and new home starts) only reflect short-term conditions, and the model’s predictions will be adjusted as future data is released and adjusted.
On one hand, the model gives a very optimistic expectation, but on the other hand, Fitch Ratings has downgraded the municipal bond rating related to the U.S. sovereign rating to “AA+” for the first time since the rating was first issued in 1994. Su Shimin, Chairman of Blackstone Group, also agreed, saying that Fitch’s downgrade was “in line with the data.” Fitch not only downgraded municipal bonds, but also stated that it may downgrade the ratings of dozens of U.S. banks, including JPMorgan Chase. Institutions generally have grievances about the long-term fiscal and debt problems of the federal government, and Fitch’s rating downgrade may be a concentrated expression of this dissatisfaction.
In August, the surge in US Treasury yields has become a “bright landscape” in the global financial markets, with both short-term and long-term government bond yields soaring. The yields on US 10-year and 30-year Treasury bonds have reached their highest levels since 2007 and 2011, respectively; short-term government bond rates such as 1-year, 2-year, and 5-year have remained high, trading in a range for months.
It’s not just US Treasuries, bond yields in countries such as Japan and Germany are also staying high.
Why are US Treasury yields rising so rapidly? The upward movement in bond yields is probably a rapid response to interest rate hikes. The US economy remains strong, and many scholars no longer expect a recession in the US this year, which has further fueled market expectations of another interest rate hike by the Federal Reserve, leading to a sustained rise in interest rates. In addition, Fitch Ratings believes that the government’s fiscal risks continue to deteriorate, which has eroded market confidence in US Treasuries and inevitably led to an increase in the cost of US debt financing.
The result of the surge in US Treasury yields is a significant pressure on risk assets. This month, the three major US stock indexes all fell, and risk assets such as Bitcoin experienced a concentrated sell-off on August 18th, but have not yet recovered from the decline. Although “the global AI leader” NVIDIA has continued to trade at high levels and set new highs, other technology heavyweights have shown a sustained downward trend. In its second-quarter report released this month, NVIDIA’s revenue doubled year-on-year, exceeding expectations by 22%, and its EPS profit increased more than fourfold year-on-year, surpassing expectations by nearly 30%. The company’s third-quarter revenue guidance is $16 billion ± 2%, a year-on-year increase of 170%, surpassing market expectations by 28%. Subsequently, NVIDIA announced that it will repurchase $25 billion worth of company shares. This move has shocked the market and sparked endless speculation among investors. Various institutions have raised their price targets for NVIDIA, with the most optimistic bulls raising their price target to $1,100 (Rosenblatt).
As the “largest arms dealer in the AI era,” NVIDIA’s momentum is unstoppable. Indeed, AI is still the most certain and widely applicable new track in the market. Generally speaking, when a giant company exceeds market expectations for two consecutive quarters, it is an important signal that there is good synergy in the upstream and downstream of the industry, indicating that an industrial chain has formed. AI may be the most certain track in the US stock market under the pressure of US Treasuries and may attract institutional buying.
The current cryptocurrency market is showing bottoming characteristics.
Firstly, in August, the price of Bitcoin suddenly plummeted, leading to the liquidation of long positions and intensified speculation. On the 18th, the coin market experienced an “earthquake”: major mainstream coins crashed, with Bitcoin hitting a low of 24220 USDT and ETH hitting a low of 1470.53 USDT, and has not recovered the decline so far. As mentioned above, this sudden drop is mainly due to the concentrated release of risk aversion, not caused by certain news. The total liquidation in the 24 hours of this drop was 990 million US dollars, an increase of 737.87% compared to the previous trading day, and the liquidation of long positions was significantly increased.
Secondly, the volatility and trading volume of Bitcoin are at historical lows, and the price performance is sluggish. This month, Jacobi Asset Management Company in Europe launched the Jacobi FT Wilshire Bitcoin Spot ETF, which was listed on the Amsterdam Euronext Exchange on August 15. However, the market has almost no response to this news, but instead there was a stampede-like crash. This has reflected that the market sentiment is relatively sensitive and lacks confidence. One of the characteristics of the bottom of the secondary market is that it is not sensitive to positive news, but is sensitive to negative news, and is prone to pessimistic stampede-like crashes. Currently, both from the market and sentiment perspectives, there is a high possibility of a bottom in the cryptocurrency market.
In addition, the total value locked (TVL) in DeFi has continued to decline this month, reaching the lowest point since February 2021, currently at about 38.134 billion US dollars. It has dropped more than 70% from the highest point of over 170 billion US dollars during the DeFi Summer in 2021.
However, on the other hand, from a global perspective, the positive news in the Web3 industry continues. Since this year, nearly 10 large financial institutions, including BlackRock, have submitted Bitcoin Spot ETF applications to the US SEC. On August 30, there was news that a federal court in the United States approved Grayscale Investments’ launch of the first Bitcoin ETF in the United States, and the US court overturned the SEC’s decision to block the ETF, paving the way for the first Bitcoin ETF.
At the same time, cryptocurrency regulations around the world are becoming more perfect. Especially in Hong Kong, the cryptocurrency market is accelerating. From the vice president of HKUST once again suggesting that the government accelerate the support of Hong Kong dollar stablecoins, to Li Ka-chiu publicly stating that he is “fully exploring the regulation of stablecoin”, and to HashKey Exchange supporting compliant “Hong Kong drift” account opening and trading, the pace of “cryptocurrency-friendly” in Hong Kong is getting faster and faster. Currently, the first batch of “licensed” cryptocurrency exchanges in Hong Kong have landed. HashKey Exchange and OSL Digital Securities announced in August that they have obtained approval from the Hong Kong Securities and Futures Commission to provide virtual asset trading services to retail users. As one of the three major financial centers in the world, Hong Kong can set an example in the compliance construction of digital asset trading, which also gives us hope for the future of cryptocurrency assets.
The Chinese and American economies are undergoing a “mismatch,” with the resilience of the U.S. economy and the temporary pressure on the Chinese economy intertwined, casting uncertainty over global investors. Safe-haven sentiment has dominated the global secondary market this month, with both U.S. stocks and Chinese A-shares performing below expectations, and the cryptocurrency market experiencing a sharp decline that has caused many to go bankrupt.
However, the bottom of the cryptocurrency market is clearly visible, and sentiment is also experiencing the most difficult “darkest hour before dawn.” From the landing of the first batch of “licensed” cryptocurrency exchanges in Hong Kong to the upcoming release of Bitcoin spot ETFs, these all indicate the booming development of Web3. From a market perspective, the bottom of this round of the currency market has been showing a volatile upward trend, and in the future, there may be events that stimulate the price to break through the $30,000 resistance level, which may usher in a new wave of growth.