Path of Least Resistance Remains Lower
Economic Slowdown Main Concern
USD Remains King
Friday’s highly anticipated NFP print did little to stop the rot as risk markets continue to remain on the backfoot. Stocks have fallen yet again today and the greenback has climbed higher as the market continues to focus on a potential economic slowdown in light of hawkish rhetoric from the FED.
It is the fifth straight week that both shares and bonds have declined and we are struggling to see why we won’t see a sixth. This week does see the release of US CPI and unless that print shows inflation significantly lower – would be shocking if the case – we don’t see risk bouncing anytime soon.
The Chinese Yuan is dropping to lows not seen since 2020 whilst the Indian rupee has hit all time lows against the USD. The S&P is closing in on the 4000 level and US 10Y yields are sitting comfortably above 3%. In normal risk off times you would see a sell off in risky assets (equities and crypto) and demand for safe havens (treasuries and gold), however, we are seeing everything sell off. In short, we are seeing deleveraging as cash once again becomes highly sought after.
Crypto markets haven’t escaped the deleveraging being seen and BTC is heading towards its July 2021 low ($32951). All crypto coins have suffered as a result and we are now approaching key support levels in the majors. It feels like only a matter of time before BTC takes out support at $33k and targets a look below $30k. This should see ETH have a look toward $2000. We are actually a bit torn on crypto at these levels and not as bearish as we are on other asset classes. At these levels we are happy to stick our hand out and start rebuilding longs but leaving enough room to add on dips. Terra has been for a lack of a better word, decimated. This came after news that the Terra stablecoin briefly lost its dollar peg on Saturday – falling to 0.9870 before recovering. Luna suffered as you would expect and dropped over 10%. A series of major withdrawals from Anchor protocol (lending market that offers high yields to users who deposit UST) started the ball rolling.
In other markets, we remain bearish, but not as much as we once were. One of our favourite positions has been short GBP/USD and we still hold the position but have taken profit on 2⁄3 of it. When it comes to FX and equities we are starting to move back to a ‘trade the extremes’ stance albeit with a ‘sell rallies’ preference.
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