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MARCH 15, 2024

PULLBACK AMID SPECULATIVE EXCESS

Bitcoin is currently experiencing a pullback from its recent peak of nearly $73,798 and is now trading around $67,725. This decline comes as the debate intensifies over whether the surge in cryptocurrencies is a sign of speculative excess in global markets. In addition, concerns over persistent inflationary pressures in the US, as well as doubts about the sustainability of recent gains driven by expectations of looser Federal Reserve monetary policies, are leading investors to reassess their positions. Bank of America’s Chief Investment Strategist, Michael Hartnett, suggested that the market is displaying bubble-like qualities, particularly with the so-called Magnificent Seven tech stocks and the soaring prices of cryptocurrencies. This, coupled with a cooling in net exchange-traded fund inflows, prompted a selloff in Bitcoin, impacted by higher U.S. yields and a strengthening dollar. The liquidation of $668 million in bullish crypto wagers in just one day reflected elevated market apprehensions, with the Bitcoin futures funding rate declining. Nonetheless, despite the volatility, it is worth highlighting that market participants view the current activity as a consolidation near all-time highs, noting similar price swings around major pivot points in the crypto market.

DUAL INTEREST

This year, both institutional investors and individuals are investing heavily in both gold and bitcoin, defying previous predictions that they were switching between the two. As stated by JPMorgan in a recent research report, it has been found that throughout the year, hedge funds and speculative investors have been actively purchasing both gold and bitcoin, driving up demand for both assets. Thus, despite initial concerns that investors may be moving from gold to bitcoin, the analysis suggests that there is simultaneous interest in both markets. Nonetheless, it is important to highlight that although JPMorgan has recognized the upward momentum in both markets, the bank is also warning about  the possibility of prices for both gold and bitcoin dropping back to their average levels. Additionally, the bank stated that MicroStrategy’s significant purchases of bitcoin, totaling over $1 billion this year, can potentially increase risks for future price fluctuations.

LIKELY PAUSE

Following the release of the latest data on inflation and jobless claims, it is very possible that the Federal Reserve will be holding off reducing interest rates for a while. As stated in the recent producer price report, U.S. producer prices surpassed expectations in February. Consequently, inflation, driven by rising energy costs and price increases for goods like used cars and clothing, is showing signs of stalling or even reversing recent declines. Furthermore, fewer individuals filed for unemployment benefits than previously reported, and this data combined with a slowdown in consumer spending, has led policymakers to believe that further progress is necessary before considering a cut in borrowing costs. Thus, analyst now expect the Fed to maintain current interest rates at their highest level in two decades to uphold price stability and maximum employment targets. Moreover, let’s also highlight that the recent retail sales figures pointed to a potential cooling of the economy, and this had heightened uncertainty among investors about the Federal Reserve’s potential decision to cut interest rates.

OPTIMISM PREVAILS

Despite concerns over inflation and a weakening U.S. labor market, investors are remaining optimistic about U.S. stock performance as stated by the Bank of America (BofA). Investors are confident in the Federal Reserve’s ability to respond by cutting interest rates to stimulate economic growth. This impending rate cut has bolstered confidence in equity markets, as investors anticipate a smoother economic transition. Moreover, it is important to remark that the record amount of money flowing into U.S. equities, particularly in technology stocks, indicates a strong belief in the resilience and potential growth of the market. However, it has also been said that in case of a downturn, many are prepared to increase investments in riskier assets as needed to maximize returns. Ultimately, while the Fed is expected to maintain rates high for a while, investors are maintaining a positive outlook.

INTERNATIONAL NEWS

Japan’s top debt underwriters project a continued strong performance in corporate and Samurai bond sales for the upcoming fiscal year, despite uncertainties regarding central bank policies. The previous fiscal year saw a record-high ¥16.6 trillion in yen-denominated bond issuances, with estimates for the next year ranging between ¥15.5 trillion to ¥17.6 trillion. Market indicators suggest sustained demand for yen bonds, even as the Bank of Japan considers raising interest rates. Tight yields and low borrowing costs in the corporate bond market, along with factors like refinancing needs and funding for mergers and acquisitions, are expected to drive new bond deals. While cautious optimism prevails, concerns linger about the impact of potential rapid rate hikes by the BOJ and the use of covenants in high-yield notes. Maintaining vigilance and adapting to market dynamics will be crucial in navigating potential risks and seizing opportunities in the evolving landscape.

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