LOW VOLATILITY

Bitcoin’s volatility metrics are currently at multiyear lows, indicating the potential for a return to average levels. However, there is a split among traders in their outlook, as some are considering buying BTC call or put options to profit from potential price turbulence, while others favor shorting volatility and setting up strategies to bet against price turbulence. This division in perspective is influenced by factors such as the lack of a clear ETF decision and the fading initial optimism surrounding spot-ETF applications. It is important to note that while selling volatility is viewed as a profitable strategy due to the low daily price ranges, it does come with risks and requires expertise and sufficient capital. Consequently, some traders are exploring the option of purchasing out-of-the-money options to hedge against potential risks.

BEARISH BETS INCREASED

Hedge funds have increased their bets against U.S. Treasuries as yields on bonds rose to multi-month highs. These funds have taken net-short positions on longer-maturity Treasuries derivatives, which is the highest level since 2010. On the other hand, asset managers have taken net-bullish positions on Treasuries, reaching an all-time high. This divergence in investor views follows factors such as the U.S. credit rating downgrade, a policy adjustment by the Bank of Japan, and a larger-than-expected Treasury issuance plan, all of which negatively affected the U.S. bond market. Hedge fund manager, Bill Ackman, is among those predicting declines for 30-year U.S. bonds due to increased bond supply. Nonetheless, despite these bearish wagers, some hedge fund positions may be driven by the “basis trade,” which exploits small price differences between cash Treasuries and corresponding futures.

MOUNTING CONCERNS

Growing concerns surrounding the sustainability of elevated levels of fiscal spending in the U.S. have prompted a wave of unease among market observers. These concerns have been compounded by the recent downgrade of U.S. government debt by Fitch Ratings, which triggered a significant sell-off in the bond market and served as a stark warning. The unexpected nature of this development, combined with the continuation of large deficits despite low unemployment rates, has raised valid questions about the viability of current policies. Furthermore, a reduction in spending could have major repercussions on corporate earnings and sales growth, intensifying the anxieties surrounding the situation. Moreover, although the stock market has experienced a recent rally, the strategy team at JPMorgan Chase & Co. stresses the persisting risks of a potential recession and its potential impact on corporate profits.

IMPACT OF HIGH PRICES

Rising oil prices in the U.S. are posing a threat to inflation levels, reversing the trend of easing price pressures. Crude prices have increased by more than 18% in the past month, resulting in higher costs for transportation, production, and everyday items. This surge in prices is causing concern among investors, who had expected the Federal Reserve to end its campaign of interest rate increases. The impact of rising oil prices on inflation will undoubtedly be a crucial consideration during the upcoming Fed meeting in September, as although the Fed’s preferred inflation metric excludes volatile food and energy costs, the indirect effects of rising oil prices are felt throughout the economy, impacting the prices of groceries, building materials, and household goods. Moreover, the recent production cuts by Saudi Arabia and Russia, along with investor optimism about the U.S. economy, have fueled the rise in prices, challenging the belief in a smooth transition towards controlled inflation.

KEY EVENTS HAPPENING THIS WEEK

Monday: Consumer credit report for June, and earnings reports for Lucid Group and Palantir Technologies (after market closes).

Tuesday: NFIB optimism index report for July, U.S. trade balance and wholesale inventories reports for June, Philadelphia and Richmond Fed Presidents’ speeches, and earnings reports for Eli Lilly, Restaurant Brands International, UPS (before market opens) and Rivian Rocket Lab (after market closes).

Wednesday: Mortgage Bankers Association (MBA) reports, and earnings reports for Walt Disney and Viasat (after market closes).

Thursday: Initial jobless claims report for week ending on August 5, Consumer price index (CPI) and Treasury budget reports for July.

Friday: Producer price index (PPI) report for July, and preliminary consumer sentiment report for August.