SIGNIFICANT RETREAT

Bitcoin has retreated more than 10% from its peak, with waning interest in emerging spot Bitcoin exchange-traded funds being a key factor. JPMorgan Chase and Co. analysts have warned that the decline may continue, pointing to potential further drops leading up to the anticipated halving event in April. Despite hitting a peak of nearly $73,798 in mid-March, concerns about the sustainability of the rally have emerged among retail traders. As a result, the group of 10 spot Bitcoin ETFs is set to record its largest weekly outflow since their debut in January. Moreover, continuous interest in CME Bitcoin futures coupled with diminishing ETF flows paint a bearish picture for the market. Outflows totaling $836 million from ETFs this week, including from the Grayscale Bitcoin Trust, suggest a slowdown in investor enthusiasm, and as the halving event draws near, price correction looms, with prices possibly dropping further.

OUTFLOWS DESPITE INCREASES

Leading up to the Federal Reserve’s policy meeting, U.S. stocks experienced significant outflows despite the S&P 500 Index reaching new record highs. Bank of America Corp. reported approximately $22 billion in withdrawals from U.S. equity funds in the week prior to Wednesday, marking the largest outflow since December 2022. This occurred as the S&P 500 rose by 1.2% during that period, following signals of potential Fed rate cuts. The trend reversed from the previous week’s record inflows into U.S. stocks, with the S&P 500 hitting all-time highs 20 times this year. Moreover, while some market strategists, such as those from the Societe Generale SA, see further growth potential due to positive corporate earnings outlooks, Bank of America’s Michael Hartnett has expressed concerns about a potential stock market bubble. Furthermore, cash funds experienced outflows exceeding $61 billion, while global bond funds received inflows of $5.4 billion according to the report.

SHOWCASING STRENGTH

The U.S. economy appears to be holding strong in the first quarter of the year, as demonstrated by a drop in the number of Americans filing for unemployment benefits and a notable increase in the sales of existing homes in February. In addition,  despite expectations of a slowdown in job growth, the unemployment rate is forecasted to remain low throughout the year. Analysts suggest that the labor market is gradually finding balance, with fewer new hires compared to before, but also fewer layoffs. Moreover, the housing market saw a significant increase in home sales, with better housing supply and higher prices. Overall, the U.S. economy continues to outperform its global counterparts, thanks to a strong labor market and steady economic indicators.

POSSIBLE CHALLENGES FOR BONDS

Long-term U.S. Treasury bonds could face challenges ahead if persistent inflation clashes with the Federal Reserve’s interest rate plans, according to BlackRock’s portfolio manager, David Rogal. This is because, if inflation remains high, prices for intermediate and longer-term bonds may suffer as they do not fully account for the potential scenario where the Fed keeps rates elevated for a longer duration. Following the Fed’s recent meeting, benchmark 10-year yields dropped by nearly three basis points to 4.27%, while two-year yields, which closely reflect policy expectations, fell by nine basis points to 4.6%. Furthermore, although the Fed anticipates inflation to reach 2.4% this year based on the personal consumption expenditures price index, with core PCE inflation projected at 2.6%, Rogal highlights that the Fed needs to adjust its stance in response to worsening inflation data.

STEADY OIL PRICES

Oil prices remained steady above $85 per barrel despite a stronger dollar impacting investor interest in commodities. Brent crude futures appeared poised to finish the week relatively unchanged, after losses erased gains made earlier in the week. Globally, there is an optimistic sentiment at the CERAWeek conference in Houston, with oil demand surpassing expectations. However, Indian refiners are rejecting Russian crude transported on Sovcomflot tankers due to U.S. sanctions, complicating a flow that previously helped stabilize prices. Alongside, the dollar index is on track for its strongest week since January, contributing to the downward pressure on commodities. Moreover, despite recent oil price increases driven by reduced U.S. inventories and production cuts by the OPEC+ alliance, concerns persist due to mounting supply from non-OPEC+ sources and uncertain economic conditions in China. Notably, instability in the Middle East involving Israel, Iran-backed groups, and the Houthis in Yemen continues to pose risks to global oil markets.