Digital Assets consolidate with buyers of the dip as Equities await inflation data
Digital Assets are consolidating today after yesterday’s weakness. As expected, having broken the two week period of higher-lows, Bitcoin retested the 31k level from two weeks ago. This led to a flurry of speculative reports that should $29k break, there is little support down to $20k, particularly with a looming potential bearish cross of the 50 and 200 Daily Moving Averages. However, there are some encouraging signs with the price building above the short-term ichimoku cloud, the futures term-funding has stabilised and implied volatilities have been selling off. There has been continued accrual of Bitcoin by bigger institutional wallets and MicroStrategy has increased the size of its current junk bond offering to $500mm to buy more BTC at these levels. Microstrategy, a 20+ year Nasdaq veteran tech company is still 3x its price since before Michael Saylor started buying BTC as protection from the debasement of fiat currencies.
The main US equity indices were little changed on Tuesday as investors preferred to trim risk ahead of Thursday’s publication of the US CPI data for May. The S&P closed marginally stronger, just shy of the high reached on Monday, after the index recovered from session lows Tuesday as gains in large-cap tech stocks helped offset losses in utilities and consumer staples. US job openings rose to 9.3 mn in April, the highest since 2000, from a revised 8.3 mn a month earlier. In Europe, the benchmark Stoxx 600 index rose for a third consecutive day. Cryptocurrencies stayed volatile.
The US 10-year Treasury yield fell to 1.51%, the lowest in a month. Other DM bond markets joined the rally as investors became increasingly comfortable with core fixed income exposures at the current stage of the global cycle. Sentiment towards US Treasuries has stabilised in the last two weeks since the co-ordinated messaging from Fed speakers and the lighter Non-Farms Payroll data. The Q1 expectations for 10yr yields to reach 2% have temporarily subsided and now there is growing speculation they could break below 1.5% and possibly head lower. Some investors anticipate growth, inflation, and fiscal / monetary stimulus lessening in the coming months and are dialing back their ‘Build Back Better’ expectations. The DXY dollar index rose 0.2% yesterday, for the first time in three sessions. Oil prices resumed its advance to top $70/bbl in New York. Gold gave up roughly half of the previous day’s gain. With the US Fed officials precluded from speaking publicly ahead of next week’s FOMC meeting, the focus has shifted to views of other prominent experts. Analysts from several large banks and media commentators have issued warnings that the ‘transitory’ period for higher inflation may not be to confined to this year.
China’s overnight interbank interest rate rose to the highest level since February, in a sign of the local bond market’s vulenrability to changes in liquidity. The overnight repo rate jumped to 2.31% Monday, and was at one stage six basis points higher than the benchmark seven-day rate, implying the most inverted funding curve since February. The repo rate then fell back 12 basis points Tuesday to 2.19%. The benchmark 10-year bonds have yet to reflect investor concerns but yields are starting to move higher – the 10-year rate has risen to 3.12% from as low as 3.07% last month. The biggest challenge for the local bond market remains the expected sharp rise in issuance. Only 26% of net financing has been completed in the first five months of 2021. Brazil’s retail sales unexpectedly rose in April, in yet another sign that the region’s largest economy is recovering faster than projected. Sales rose 1.8% mom, compared with a median estimate of a 0.3% decline. From a year ago, sales were up 24%, reflecting the very weak base.