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AUGUST 28, 2023

POSSIBLE REBOUND

According to analysts at JPMorgan, the recent downturn in the cryptocurrency market, accompanied by liquidations, may have finally come to a halt. After conducting a study on Bitcoin futures contracts, they suggest that the selling pressure resulting from investors closing out their long positions could soon subside. This implies that any further declines in the crypto market in the near future might be minimal. Initially, there was a wave of optimism fueled by positive developments such as a favorable XRP ruling, expectations for Bitcoin ETF approvals by the U.S. Securities and Exchange Commission (SEC), PayPal’s entry into the stablecoin market, and preparations for the upcoming Bitcoin halving event. However, this sentiment took a hit due to recent events, including potential SEC appeals and discussions around stringent stablecoin regulations, resulting in liquidations and a decline in confidence. The JPMorgan analysts believe that the unwinding of these long positions is almost complete, attributing the market correction to broader factors affecting risk assets, including equities and technology companies.

DISCUSSIONS ON RATES

During a recent annual event held in Wyoming, top central bankers convened to address the question of whether to raise interest rates. Their common message was the need to contain inflation and respond to the challenges posed by shifting economic dynamics, which complicate their decision-making process. While providing limited insights into their future plans, the discussions covered a wide range of topics, including productivity, innovation, bond-market structure, global supply chains, and rising public debt levels. Moreover, both the Federal Reserve and the European Central Bank are grappling with similar dilemmas, weighing the possibility of raising borrowing costs in light of lingering inflation and economic uncertainties. Fed Chair Jerome Powell remained noncommittal about future rate increases, while his colleagues were divided, with some advocating for higher rates and others preferring a cautious approach to assess the impact of previous hikes.

APPEALING FOR SOME

Despite Federal Reserve Chair Jerome Powell’s warnings about raising interest rates to combat inflation, some investors are finding the beaten-down U.S. Treasuries to be irresistible. Western Asset Management and JPMorgan Chase & Co. remain optimistic about bonds, citing attractive yields and the belief that even with potential rate hikes, the income from bonds will outweigh any possible losses. Nevertheless, not all investors share this sentiment as hedge funds recently assumed bearish positions on Treasuries, possibly linked to a strategy called basis trading, which capitalizes on price disparities between actual Treasuries and corresponding futures contracts.

STEADY PRICES

Gold’s price has remained steady at $1,914.59 per ounce as investors processed Federal Reserve Chair Jerome Powell’s comments and await important U.S. economic data that will provide more insights into inflation and job market conditions. This stability is seen as a positive sign considering the current situation. Furthermore, although the stronger dollar limited gold’s gains, a decrease in 10-year Treasury bond yields offered some relief. This aligns with historical patterns where gold tends to face challenges when compared to investments that earn interest during periods of rising rates, a pattern that experts were expecting.

KEY EVENTS HAPPENING THIS WEEK

Monday: 3-month bill, 6-month bill, 2 year note, and 5 year note auctions.

Tuesday: Job openings report for July, Consumer confidence report for August and earnings reports for Best Buy, NIO (before market opens), and HP (after market closes).

Wednesday: Mortgage Bankers Association (MBA) reports, ADP employment report for August, GDP report for second quarter, Pending home sales report for July, and earnings reports for Brown-Forman (before market opens), and Salesforce, Crowdstrike, Okta (after market closes).

Thursday: Initial jobless claims report for week ending on August 25, PCE report for July, and earnings report for Dollar General (before market opens), Broadcom, and Lululemon Athletica (after market closes).

Friday: Construction spending report for July, and U.S. nonfarm payrolls unemployment rate and ISM manufacturing reports for August.

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