Yesterday (April 25), the U.S. GDP for the first quarter was significantly below expectations, and at the same time, the PCE price index rebounded sharply to 3.7%, indicating that the PCE inflation index to be announced tonight is very likely to exceed previous market forecasts. The combination of weak economic output and rising prices has negatively impacted investor sentiment, leading to a decline in the three major indices. The yield on the sensitive two-year U.S. Treasury notes briefly spiked to 5.016% before gradually falling back below 5.0%. Federal Reserve member Goolsbee stated that after a series of higher-than-expected inflation data, the Fed must “readjust” and “must wait and see.”

Source: TradingView
In the realm of digital currencies, the correlation between BTC and U.S. stocks has recently strengthened. During the opening phase of the U.S. market, the price of BTC temporarily dipped below $63,000, attracting a significant number of buy orders for BTC options at the $59,000-P and $60,000-P levels for the following week. In terms of bulk transactions, BTC trades are shifting towards the future, with the buying and selling of OTM CallSpreads and several sets of triangular price difference strategies indicating a gamble on the upside potential. For ETH, the transactions are predominantly bullish options purchases, spread across exercise prices near the 0.25 Delta for the dates 17 MAY 24 and 28 JUN 24.

Source: Deribit （As of 26 APR 8:00 UTC）

Source: SignalPlus

Data Source: Deribit, Overall Distribution of ETH Tradings

Data Source: Deribit, Overall Distribution of BTC Transactions

Source: Deribit Block Trade

Source: Deribit Block Trade

Couple of unfriendly econ data prints affected risk sentiment for much of the NY session. US Q1 GDP came in at 1.6% vs 3.4% in Q4, with personal consumption decelerating to 2.5% (from 3.3%) and goods spending dropping to -0.4% (from 3.0%). Inventories (-0.3%), net exports (-0.86%), Federal spending (-0.2%) all detracted from growth in Q1, while the PCE price index uncooperatively jumped to 3.1% (vs 1.6%), the highest reading since 2Q2023, while private domestic demand was the main bright spot, adding +3.1%. Unfortunately, any optimism was dashed by a significant jump in core PCE deflation to 3.7% (vs 2.0%), suggesting today’s (Fed focused) core PCE is likely to carry upside risks against headline consensus of 2.7%.

All in all, it was a fairly toxic cocktail for asset prices, with softer economic output against higher prices (dare we say… stagflation?). US treasury yields jumped 6–8bp across the curve, with 2yr yields breaching 5% at one point before correcting back to 4.99%. Cumulative interest rates for FY2024 have fallen back to just 1.4 cuts, a staggering change of fortune from 8 cuts (!!) being priced-in earlier in January.
Unless PCE surprises dramatically to the downside, markets would expect some ‘recalibration’ out of Powell’s FOMC presser next week. Recall an earlier interview with Chicago Fed President Goolsebee who stated:
“Now that we’re seeing — after six, seven months of very strong improvement and close-to-2% inflation — something that’s well above that, we have to recalibrate, and we have to wait and see” — Chicago Fed Goolsebee
It would be reasonable to expect the chairman to dial back his March bravado, and be forced to accept that inflation developments have not proceeded in the way the Fed would have preferred. An additional variable would be whether a ‘hawkish recalibration’ would spill over into the QT-taper timing, where markets are currently expecting a taper date as early as May. Keep an eye out on whether “few participants” noted to continue QT in its current space until we see further reserve deterioration.

US equities fell -1% for most of the session, weighed down further by poor reaction to earnings overnight, before staging a ferocious +2% counter-trend rally post Microsoft and Alphabet earnings late in the session. Microsoft shares jumped >5% after revenues beat across the board (Cloud, PCs, Productivity), while Google jumped over 11% on advertising and services beat, in addition to announcing a $70bln buyback and the company’s first ever dividend payment.

Crypto major prices remain in a holding pattern, with investor attention continuing to be diverted towards memecoins / BTC runes given their YTD runs. BTC ETFs saw a 2nd consecutive day of outflows, continuing a somewhat disappointing 4-week run with mainstream investor interest slowing materially, despite native excitement over the most recent halving. We remain neutral to cautious on price action at the current juncture.

Finally, following reports by the SEC likely to formally reject spot Ethereum ETFs in May, we saw Consensys throw its hat in the litigation rink against the SEC with the complaint alleging that the agency has been “attempting to unlawfully regulate ether through ad hoc enforcement actions against Consensys and possibly others”. Tit-for-tat.
The major takeaway from everything we’ve learned in crypto over the past few years? Always be long lawyers. In fact, be irresponsibly long. Have a wonderful weekend friends.

Influenced by the latest round of Middle Eastern geopolitical news, Bitcoin’s intraday drop exceeded 4%, reaching a low of 63606, and forming a support level around 64000.

Source: TradingView
Due to the decline in cryptocurrency prices, the world’s largest Bitcoin spot ETF — BlackRock’s IBIT — has ended its 71-day streak of continuous positive inflows. Meanwhile, Grayscale’s GBTC experienced a sell-off of up to $130 million, significantly surpassing the total inflows of other ETFs.
Since the approval of ETFs, their daily net inflows have been regarded by many investors as a sentiment indicator for the BTC market. The fact that IBIT has lost its market appeal over the past day may be seen as a short-term bearish signal. However, it is also important to note that the net inflow achieved by the ETF since its launch has far exceeded market expectations, with assets under management surpassing $20 billion in such a short time. A temporary slowdown in flows is understandable.
In other news, according to a report by U.Today, citing two anonymous executives, banking giant Morgan Stanley may allow 15,000 brokers to sell Bitcoin ETFs to their clients. Up to this point, the bank has only been actively offering these products, meaning they have not proactively recommended investing in Bitcoin ETFs to their clients. However, as the report suggests, this policy change (if not just a rumor) could significantly increase the demand for BTC ETFs.

Source: Farside Investors
In terms of options, the overall level of Implied Volatility has plummeted again, with BTC and ETH cycle options continuing yesterday’s selling pressure. IV fell by about 8%, particularly in ETH, where trades within the April 26, 2024, strike price range of $3000–$3200 accounted for nearly all of ETH’s trading volume over the past day. For BTC, there was selling at both At-The-Money and on the wings.
Additionally, there are some bullish options being built near the $70000–$80000 strike price range for BTC towards the end of May. The selling of deeper Out-Of-The-Money bullish options mainly came from large block platform custom strategies, which involved selling the May 110000 Call while simultaneously purchasing an equal quantity of the June 110000 vs 160000 Call Spread.

Source: Deribit （As of 25 APR 8:00 UTC）

Source: SignalPlus

Data Source: Deribit, Overall distribution of ETH tradings and tradings on 26 Apr 24.

Data Source: Deribit, Overall distribution of BTC tradings and tradings on 26 APR 24.

Source: Deribit Block Trade

Source: Deribit Block Trade

‘Bad news is good news’ again with risk markets cheering a slowdown in the S&P manufacturing PMI, with the headline dropping below 50 versus expectations of 52. Weakness was driven across new orders (49.5 vs 52.6), outputs, (51.1 vs 54) and some slowdown in employment (51.9 vs 52.2). Furthermore, the subsequent services PMI release also surprised weaker at 50.9 vs 51.7 expectations, with significant drops in new business and especially employment (47.3 vs 51.1), with the latter reaching the lowest levels since covid.

Treasuries rebounded in response, with 2yr yields dropping from ~5% back down toward 4.92% in a bull steepening manner. USD also weakened in response with EUR trading above 1.07 and USDJPY holding below 154.85. Tech stocks led the intraday rally with the soft data re-igniting some hopes for rate cuts again, with tech stocks adding +1.5%.
Most importantly, official commentary from a S&P economist stated that recent pace of activity “may be lost in the coming months, as April saw inflows of new business fall for the first time in six months”, which has “prompted companies to cut payroll numbers at a rate not seen since the GFC” outside of the covid period. A sobering outlook indeed.

Furthermore, as a sign of further short-squeezes, Tesla added +13% after-markets post their Q1 earnings, despite profit, revenue, and margin all grossly missing estimates. Global inventory jumped to 28 days vs 15 last quarter as a sign of slowing demand, though the price action would suggest that investors are well positioned against the weaker release already.

Elsewhere, investors are cheering on some optimism back into our region as HSI and HSCEI have outperformed most developed market indices last week, the first time in a long time. Southbound flows into HK has been positive every single week except for 1 since the Chinese new year break, suggestive of some real follow through action from authorities since the bullish policy turn earlier in the year.

Crypto prices have continued to stay strong with BTC creeping back towards 67k again with altcoins rallying back 10–20% over the past week. While some might attribute the halving as a positive analyst, we think the multiple flushes down to 60k have taken out a lot of near-term longs, which has fueled the current short-squeeze despite ETFs being a non-factor. Expect prices to mirror the recovery in equity sentiment over the next few days until PCE, where a soft print might be the catalyst we need to take BTC back above $70k. Fingers crossed!

Yesterday (April 22), the U.S. stock market saw a slight rebound in risk sentiment, ending a six-day losing streak for the S&P 500, giving the market a breather ahead of Friday’s PCE Index, a busy earnings week, and the upcoming FOMC meeting. On the other hand, recent poor inflation data has delayed market expectations for the Federal Reserve to shift to a looser policy. U.S. Treasury yields continue to fluctuate at high levels, forcing global investors to reconsider their expectations for a global easing cycle. Some investors are beginning to doubt the determination of the European Central Bank to cut interest rates. The currency market no longer fully incorporates expectations that the ECB will cut rates three times by December. Morgan Stanley analysts pointed out in a report, “Inflation triggered by exchange rates gives us reason to worry about the ECB’s rate-cutting actions, which are more aggressive than previously anticipated.”

Source: TradingView, SP 500
The gold premium brought by geopolitical conflicts is gradually fading from the market, with spot gold recording its largest single-day decline in two years and continuing to fall today.

Source: TradingView, XAUUSD
In the realm of digital currencies, ETFs have maintained positive inflows, with FBTC’s inflows surpassing those of the major player IBTC for three consecutive days, and outflows from GBTC also decreasing. Additionally, according to the on-chain data analytics firm Artemix, net inflows into stablecoins have persisted for 15 out of 16 weeks so far in 2024, with last week’s net inflow reaching $3.4 billion, the third highest level in 2024.

Source: Farside Investors；Twitter
In the past day, the BTC price rallied from $66,000 to $67,000 before experiencing a pullback to near $66,000. In terms of options, implied volatility has noticeably steepened downwards. There were transactions of Iron Condor strategies in BTC options with opposing directions, buying Vol at the end of April and selling Vol at the end of May. Additionally, a large number of bullish options for BTC expiring at the end of June were heavily sold, influenced by two triangular arbitrage trades on the bulk platform, involving selling 28 JUN 75000 & 80000 Calls while buying 27 DEC 80000-C and 27 SEP 90000-C, possibly due to uncertainties surrounding the U.S. election.
On the ETH front, trades were relatively concentrated. Large accounts bought a massive amount of 3100 Puts at the end of April as protection for the upcoming monthly settlement, while retail traders took advantage of the still-declining implied volatility to sell OTM Puts on May 3 and May 31, earning premiums.

Source: Deribit （As of 23 A PR 8:00 UTC）

Source: SignalPlus

Data Source: Deribit,ETH trading distribution

Data Source: Deribit, BTC trading distribution, a large number of Calls expiring at the end of June were sold off.

Source: Deribit Block Trade

Source: Deribit Block Trade

A lack of geopolitical escalation over the weekend and and early week risk-rebound from oversold positions rallied risk markets across the board yesterday. Fixed income volumes were 60–70% of normal, with activity somewhat muted despite the constructive price action, with investors likely choosing to remain sidelined heading into PCE on Friday, FOMC in about 8 days, and the busiest week of SPX earnings this quarter. 44% of the SPX will be reporting this week, including of the 5 out of the ‘Magnificient 7’ megacaps. Tesla will be due on Tuesday, Meta on Wednesday, and MSFT, Google, Amazon all on Thursday.

With last week’s sell off in bonds, equities continue to trade historically rich (on an implied yield basis) versus fixed income, with data stretching back to the early 2000s. With that being said, Wall Street estimates that investors remain comfortably long with long position proxy coming in at a 4-year high, and SPX / Nasdaq short interests coming in at almost decade lows.

With that being said, the negative price action last week has inflicted a certain amount of technical damage to equity charts. SPX futures have now closed below its 55d moving age, with the next 200D MA support over 5% away. On a weekly basis, slow stochatics has flipped negative and accelerating downwards, while the monthly SPX candle chart is also threatening to print a bearish outside month against a record high. Something to keep in mind as we move through the earnings season.

In crypto, JPM sees a similar over-weight in BTC positioning based on CME futures contracts, while ETF outflows have continued for a 2nd straight week (albeit small), with mainstream momentum clearly waning. Flows on Monday rebounded slightly to a net +62mm against the risk rally, but nothing really to write home about. More to update later on in the week as market activity picks back up after a quiet Monday lull.

In the U.S., Federal Reserve Chairman Powell has assured since the beginning of this year that rate cuts in 2024 were gradually fading away last week, as he clearly communicated to the market that interest rates will remain high for a longer period. Moreover, he is not the only one in the Fed who has shifted his stance. The Fed’s notable dove, Goolsbee, not only thinks it makes sense to “wait” before cutting rates but also strongly stated, “Nothing is off the table if needed,” when asked about the possibility of a rate hike. Treasury yields have hovered near recent highs, with the rate-sensitive two-year yield maintaining close to the 5% mark, currently at 4.993%. Looking at the macro perspective this week, the Fed’s favored PCE index will be released on Friday, but unfortunately, Powell will not be able to comment on it this Friday, as the Fed has already entered the quiet period before the next FOMC meeting.

Source: SignalPlus, Economic Calendar, This week, the Fed’s favored PCE index will be released

Source: Investing, The two-year yield, which is more sensitive to interest rate policies, remains near the critical level of 5%
In terms of digital currency, the BTC halving was completed smoothly, and the market did not stir up any waves. Most trading views were fully priced-in before the event. After the fluctuations reflected in the hourly chart gradually weakened, a breakthrough was successfully achieved during the Asian Stock Market trading hours, challenging the $66,000 resistance level.

Source: TradingView
In terms of futures, leveraged funds have not yet entered the market. The funding rate levels derived from the weighted positions of major exchanges are oscillating around the zero axis. On OKX, the premium of futures on several key delivery dates is maintained at approximately 10 to 12% (approximately equivalent to a perpetual contract funding rate of 1 bp).

Source: Coinglass

Source: SignalPlus, OKX futures
In terms of ETFs, the Bitcoin ETF finally ended its five consecutive days of net outflows, with the top ETFs receiving capital injections on the 19th, while the outflows from GBTC also showed a gradual declining trend.

Source: Farside Investors

Source: Deribit （As of 22 APR 8:00 UTC）
In terms of options, on the one hand, we see that the current volatility curve has broken the previously inverted pattern, but the overall slope remains relatively flat; at the same time, the front-end Vol Skew has returned from its previous low to a relatively flat position, with the 25 dRR near the median of the past three months.

Source: SignalPlus

Source: SignalPlus, Vol skew returns to normal level
Option trading volumes have remained relatively low since halving, which includes the impact of generally lower liquidity on weekends. In the case of ETH, the purchase of bullish options ranging from K= 3550 to 3700 in April, amounting to tens of thousands, was deemed as reducing positions, possibly closing out profits in Theta and Vega, or it could be a de-leveraging action taken under the unclear circumstances of current geopolitical and macroeconomic conditions and post-halving price trends. For BTC, bearish option purchases occurred at the $59,000 support level at the end of April, and a large number of bearish options sales below this support level (57000/58000) also appeared at the end of May.

Source: Laevitas

Data Source: Deribit，BTC & ETH transaction distribution

Source: Deribit Block Trade

Source: Deribit Block Trade

Geopolitical tension and negative sentiment appear to be unravelling rapidly. While the US session started innocuously with initial jobless claims staying remarkably stable (~210k for 5 out of 6 weeks) and US Philly Fed climbing to the strongest levels since April 2022 (boosted by a +12.2 jump in new orders and +23 in prices paid).

However, after finding their footing just a day, US treasuries received another gut-punch again as NY Fed President Williams suggested that a rate hike is no longer his ‘base-case’, stating that interest rates are at a “good place” and “I don’t feel urgency to cut interest rates”. Yields jumped between 5–6bp across the board with 2yr approaching their YTD peak at around 5% once again.

The jump in treasury yields and US$ index have caused US Treasury Secretary Yellen, Japanese FoM Suzuki, and South Korean FinMin Choi Sang-mok to make a join statement that the countries will “continue to consult closely on foreign exchange market developments in line with our existing G-20 commitments, while acknowledging serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won.”, effectively giving the greenlight to potential FX intervention out of the Asian blocs should the current trend continue. Furthermore, Reuters later reported further headlines that Japan FinMin Suzuki stated that it was meaningful that “G7 confirmed its commitment to excessive FX moves, which have a negative impact on the economy”. It would appear that headline trading risks are going to be back in en vogue for a little while.

Speaking of headline risks, a late-day headline of an Israeli strike on Iran led to a rapid sell-off across all asset classes (SPX futures <5000, Nikkei futures -3%, BTC dipped below from 63.5 to sub 60k), with risk sentiment likely to remain against the back-foot heading into the weekend as the war premium escalates. BTC ETF flows were disappointing again with IBIT adding only $37M out inflows against a -$90M outflow from GBTC.
We don’t have much further insights to add beyond what we have been advocating for the last 1.5 weeks on position de-risking and PNL protection. The geopolitical conflicts appear to be no closer to being resolved, while macro data is going to show little in the ways of any potential dovish relief until PCE next Friday, assuming it even comes in cooperatively, that is. Stay safe into the weekend friends.

Yesterday (17APR), due to strong demand for issuance, US Treasury yields collectively saw a slight pullback from their highs. The ten-year yield returned below 4.6%, closing at 4.575%. The two-year yield, sensitive to interest rate policy, stood at 4.924%, and risk sentiment cooled off. In the stock market, optimism remained subdued. All three major indices declined, with the S&P 500 experiencing its fourth consecutive day of losses. Market sentiment has dramatically shifted over the past two weeks, also putting pressure on cryptocurrency.

In the realm of digital currencies, ETFs saw net outflows for the fourth consecutive day. Apart from ongoing selling pressure from grayscale, Cathie Wood’s ARKB, the third-largest Bitcoin spot ETF in the market, also witnessed outflows. Some analysts view these outflows as a sign of product maturity, suggesting that users may be seeking to reduce risk exposure during BTC’s volatile cycles or simply closing out profits.

Moreover, Google Trends data indicates a surge in searches for “Bitcoin halving” to 45, with an expected increase to 100 in the near future (indicating peak popularity for the term).

From a price perspective, it was another tough night for bulls. BTC broke below the critical $62,000 technical support level, with the market hoping for support around $59,000. However, the number of liquidated contracts last night was significantly reduced compared to before, and the high leverage concentrated on BTC has been substantially reduced, reflecting a relatively healthier market condition.

In options, ETH’s IV levels slightly increased overall, with significant net inflows observed in Long Puts for 19APR/31MAY trades. For BTC, short-term IV saw a slight uptick amidst yesterday’s volatility and the looming halving event. Notable market attention was drawn to a large 1875 BTC*2 calendar Call Spread (buying at 80,000 for May, selling at 90,000 for September), reflecting expectations for the market direction post-halving.

Yet another risk-off day in markets yesterday as traders remain in damage control mode. Treasury prices rebounded a day after Powell threw cold water on rate cuts for this year, while the S&P 500 fell for the 4th straight day, the longest losing streak since January. The sell-off took no prisoners, with gold, oil, and crypto all trading on the back-foot as fear is over-taking FOMO in the near-term.
On the political side, the US imposed (anticipated) tariffs on Chinese steel amongst some other new restrictions, along with further apparent progress made on the TikTok bill in Congress.

With prices likely driven solely off technicals and positioning in the meantime, a quick look at various sentiment gauges will show that the recent sell-offs had inflicted significant technical damage, although we might be overdue for an oversold bounce in the meantime. The number of Nasdaq and SPX stocks hitting one-month lows hit a recent 1-year high, while Citi’s proprietary sentiment barometer flipped to ‘fear’ territory after the recent sell-offs.

On the earnings side, things have been off to a muted start with banks repeating mixed earnings (JPM missed, GS beat), while LVMH missed top-line sales somewhat on a lowdown in luxury purchases out of China. On the tech side, bookings at Dutch giant ASML fell 61% in Q1 to €3.6bln, widely missing estimates of €4.6bln. A slowdown in new orders from TSCM & Samsung led to weaker results, citing high inventory levels as semiconductor manufacturing capacity has been ramped up globally.

In crypto, nothing particularly new to note, though Ark ETFs saw a 2nd day of outflows at -$42mln along with -$133mln from Grayscale, while Blackrock's IBIT only saw $18mln of inflows for a net outflow of over -$160mln. Expect to see more sideway / downward price action for the foreseeable future...

Yesterday, strong economic data from the United States prompted the Atlanta Fed’s GDPNow model to raise its forecast to 2.9%, far exceeding Wall Street’s predictions. Meanwhile, concerns about inflation intensified, with the two-year Treasury yield nearing the 5.0% mark place, and the 2–10 real yield curve steepening to its highest level since the end of 2022.
At this juncture, Federal Reserve Chair Powell and other officials took the stage to acknowledge that recent data indicated insufficient progress in inflation this year and that restoring confidence in inflation might take longer than expected. In contrast, Bank of Canada Governor Macklem stated on the same day that the Bank of Canada does not need to follow the actions of the Federal Reserve. In Europe, ECB President Lagarde also made remarks indicating a potential rate cut unless there are significant unexpected events. The Federal Reserve appears to be in a somewhat isolated position.

Source: Investing, The two-year Treasury yield, sensitive to interest rate policies, is on the brink of breaking through the 5.0% threshold.
In the realm of cryptocurrencies, BTC rebounded from $62,000 to $64,000 early in the morning, but experienced a decline after options settlement. However, such price fluctuations have been observed almost daily this week. The early cashing out of profits by miners before BTC halving was within expectations, as significant declines have occurred before the last three halvings. Yet, miners’ influence has diminished compared to previous years, and this time, the price increase is also backed by ETFs, allowing the recent 17% drop to be quickly absorbed by the market. Although Vol Skew remains low, the rise in IV at the front end of options has almost been offset today. A trader from CrytoQuant commented, “The correct approach now is to enter the market gradually at previously identified strategic points. The path to the current cycle’s peak remains open, and we are still at the beginning of this journey.”

Source: SignalPlus；NewBTCs

Source: SignalPlus, Front-end ATM volatility retreats.
However, there’s a risk point in ETH that has caught the market’s attention. According to Defillama data, there is around $52.5 million worth of on-chain lending will be liquidated near $2904 (a -5.5% drop from now), involving approximately 18,000 ETH, which could further drive down the price amidst liquidation. This risk has attracted short-term buying for 2900-P options.

Source: Defillama, there is a $52.5 million on-chain liquidation in ETH around 2904.
Speaking of trading overall, the ETH front end is still primarily dominated by strategies with a bearish Delta, with limited bullish sentiment expressed in the forward market. On the BTC side, buying Puts at the front end remains popular, but some buying of Calls on dips has gradually returned in the past 24 hours.

Source: Deribit (As of 17APR 8:00 UTC)

Data Source: Deribit, Distribution of BTC trading maturities.

Data Source: Deribit, Distribution of ETH trading distributions.

Source: Deribit Block Trade

Source: Deribit Block Trade

Markets managed to take a short breather yesterday, although PNL tension remains high with choppy intraday price action and thin order book liquidity. China data started on the day with a positive note, reporting a 5.3% Q2 GDP that was well above consensus estimates of 4.8%. However, optimism soon faded as investors remained skeptical of the underlying strength, especially in light of a much weaker set of industrial production and retail sales figures that were less advertised. Industrial production came in at just 4.5% in March, significantly below expectations of 6.0% and last year's pace of 7%, while manufacturing capacity utilization plummeted to 73.8%, the weakest levels since 2015 outside of the covid period. Falling utilization rates were prevalent even in state-sponsored sections such as automobiles, chips, solar panels, and other electrical equipment, adding to concerns about a looming overcapacity problem.

Over in the US, the recent run of strong data has led the Atlanta Fed to raise their GDPNow estimates to 2.9%, still substantially above Wall Street estimates. 10y year real yields (inflation adjusted) rose back to 2.2%, while the 2/10s real yield curve has also steepened back to the steepest levels since October 2022 on rising inflation concerns. By the way - does anyone still remember the 'guarantees' of an economic recession with the inverted yield curve from 2022-2023 from casual macro observers? So much for that right?

With the realities of sticky inflation and robust economic activity that's impossible to ignore, the entire Fed committee, even including the Chairman himself, has been forced (grudingly) into dialing back their dovish narratives, separating the Fed in a lonely camp all on their own when it comes to upcoming policy trajectory:

Fed Chair Powell: “The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,”Fed Vice Chair Jefferson: US interest rates might have to stay higher for longer if “inflation is more persistent than I currently expect it to be.”Boston Fed Collins: "it may just take more time than previously thought" and that "CPI figures in Q1 came higher than I’d hoped”Richmond Fed Barkin: want to see more“broader disinflation, not just in goods”NY Fed Williams: “rate cuts don’t appear imminent”, alluding that “there are definitely circumstances that we would need higher interest rates, but that's not my base case."

Constrating those statements against other developed market central bankers:
ECB's Lagarde: ECB will cut rates soon, barring any major surprises; "We are observing a disinflationary process that is moving according to our expectations,"BoE’s Lombardelli: interest rate cuts ‘are the direction of travel’BoC's Macklem: "we don't have to do what the Fed does, we do what Canada needs"

On the back of the Fed's about-face, interest rate markets have stripped out the majority of implied rate cuts in 2024, unwinding all of the Q1 dovishness and breaking above even last October's peak hawkishness. Furthermore, the policy divergence with other central bankers is giving a firm bid to the USD, with USDJPY trading above 155, USDCNY fix above 7.10, and the overall DXY index back at the strongest levels since 2022.

Furthermore, the spillover from higher real yields has been more problematic this time, with equity markets finally buckling under the prospect of rates being 'higher for longer', though more due to overbought positioning than changes in underlying fundamentals. US equity's negative beta to yields have increased recently, leading to back to back -1% drawdown days in the SPX for the 1st time since last October. Furthermore, equity VIX closed above 19 for the first time since Halloween and implied stock correlation has jumped to 23 vs just 12 at the end of march. The ongoing tension around the Middle East will likely keep implied volatility pricing high over the foreseeable future.

Over in crypto, BTC prices have tested and held a couple of stops beneath 60k, hovering back at 64k as of the time of writing. However, the rest of the crypto space are faring much worse than Bitcoin, with ETH/BTC ratio continuing to dip to nearly 4 year lows, with SEC looking increasingly unlikely to approve Ethereum ETFs this round, while altcoins have lost -30% to -40% of value in the past month vs just -5% in BTC. There has been significant PNL damage inflicted over the past 1.5 weeks, which will take quite some time to work through.

ETF inflows have continued to slow as well, with Blackrock's IBIT the only ETF to show net inflows since Friday, with retail not showing much interest to 'buy the dip'. We expect ETF inflows to play a smaller role in the near future as the current FOMO narrative has largely run its course. In the meantime, we would expect Bitcoin prices to trade like a 'turbo-Nasdaq' note once again, reverting to its patterned behaviour over the past 4 years.
In other words, less digital gold, more leveraged beta. Let's pray that our 'tech-bros' friends can hold the fort with strong earnings into and out of the current reporting season! Good luck!

Yesterday’s (15APR) retail data in the US showed strong performance, with a month-on-month growth rate of 0.7%, significantly surpassing expectations of 0.4%. The previous figure was also revised upwards from 0.6% to 0.9%. This has further postponed market expectations for a rate cut by the Federal Reserve. The probabilities of no rate cuts in June and August are now 80% and 54% respectively. US bond yields are gradually rising, with the two-year and ten-year yields at 4.946% and 4.655% respectively. Under pressure, US stocks declined, with the Dow Jones, S&P, and Nasdaq falling by 0.65%, 1.2%, and 1.79% respectively.

Source: SignalPlus, Economic Calendar
Amid escalating tensions in the Middle East and the repeated postponement of US rate cut expectations, the cryptocurrency market is oscillating at low levels in a climate of risk aversion. BTC experienced a brief rebound following the approval of ETFs in Hong Kong but then declined again, breaking the crucial support level of $62,000 several times.

Source: SignalPlus, BTC falls below the $62,000 support level several times.
From the data perspective, this downturn was primarily triggered by liquidating of longing futures and stop-losses being hit, with funding rates returning to relatively neutral levels (even reaching negative values). Looking at the bright side, this deleveraging operation has put BTC’s overall position (compared to early March) into a relatively healthy state.

Source: Coinglass, Funding rates returning to neutral, cooling leverage market sentiment.
On the other hand, the halving this week has a greater direct impact on BTC prices. According to reports from Bitfinex, a large number of BTC holders on centralized exchanges have chosen to exit recently, and the number of BTC held in inactive addresses for over a year has also decreased to a new low in nearly 18 months. This reveals the behavior of long-term holders (LTHs) reducing positions or continuously moving holdings from exchanges elsewhere in recent times. At the same time, short-term holders (STHs) are observed absorbing the positions they sell. If the flow of STHs continues, the price of the coin may continue to have upward potential.

Source: Deribit (As of 16APR 8:00 UTC)
In terms of options, the front-end Vol Skew has dropped to its lowest point in the past three months. Long Put positions have been established at numerous significant striking prices for BTC and ETH in April. Meanwhile, under such steep IV Surface, the selling pressure of front-end bullish options for BTC remains strong. Only a few sell put spreads have been transacted below the relatively distant $60,000 mark. The bullish sentiment in the market has been thoroughly suppressed by the tense atmosphere of risk aversion in these two days.

Source: SignalPlus, Volatility Skew is currently at historical lows.

Source: SignalPlus

Data Source: Deribit, BTC trading distribution.

Data Source: Deribit, ETH trading distribution.

Source: Deribit Block Trade

Source: Deribit Block Trade

Ok, markets are finally paying attention now.
After a long period of complacency to overlook every single macro concern and event risks thanks to AI / dovish Fed / lack of recession concerns, we saw a notable change in US investor behaviour as they aggressively sold the NY open after a decent market recovery in the Asia overnight session.
For what felt like an eternity, we have been accustomed to dip-buying in the US with stock market bears practically extinct after months of relentless rallies. Is this (finally) the beginning of the of a change in equity investor behaviour as the recent yield rises (2yr ~4.9%) is starting to reverberate back into overall sentiment? Has there been enough PNL damage in fixed income and crypto land to warrant a biggest shift to a defensive stance? While it’s too early to say, the early tremors are definitely being felt, and this is definitely something worth keeping an eye out as earnings seasons will kick into full force over the next 2–3 weeks.

On the data side, US consumer exceptionalism continued as March retail sales surged with headlines rising 0.7% and ex-autos jumping +1.1%, both substantially above forecasts. Strength was universal across core spending, control groups, and on real goods. The continued consumer resilience will serve to boost GDP forecasts and pressure rate cutting odds, with June probabilities dropping below 20%.

As the Fed continues to find creative narratives to justify their dovish narrative (NY Fed Williams: “still expects rate cuts to begin this year”), the rate market is self-adjusting with inflation expectations climbing aggressively. 5yr inflation breakevens are back above 2.5%, the highest levels in well over a year, when CPI was on a very different trajectory. 2yr yields are nearing 5%, implying 1y forward yields coming at a much higher trajectory than the Fed’s own dot-plots.

The quiet discomfort over the Fed’s dovish narrative is surfacing via a jump in fixed income implied volatility via the MOVE index. After a galliant effort from Fed speakers to crush bond volatility in Q1 via their managed speeches, the market has revolted somewhat as the dovish guidance is increasingly at odds with economic strength and inflation pressures.

In fact, outside of interest rates, general volatility is rising across macro asset classes, including equities and high yield credit. Levered positioning across bonds and equites are at relative extremes as well, with CTA positioned massively short bonds (yield higher) while being close to ‘max long’ equities.
The extreme positioning could very much lead to more choppy price action over the next few weeks, given the high tension geopolitical headlines and the high bar being set for this quarter’s earning results. A weekly SPX close below the 200D moving average on the SPX could compel CTAs to flip their bullish positioning. The last time in which it happened was in the summer of 2023, which led to a further ~5% drawdown in prices.

Finally, blackout restrictions on stock buybacks will persist until the first week of May, exposing equities to potential further downsides in the near-term. Be aware of catching falling knives too early at this juncture.

Crypto prices are similarly struggling on the overall risk-off move, with very real PNL and liquidation damages inflicted on traders, as BTC/ETH prices are down 10% on the week, while the other top altcoins have cratered by ~20% during that time. Given the extent and speed of the sell-off, we think PNL-management will be the paramount driver over halving narratives or other popular rhetoric, and would advocate de-risking leverage substantially over the next few weeks.
Macro will need some time to work out its latest feud and obtain satisfactory clarity from the Fed, while fundamental investors will need corporate earnings to justify their unrelenting faith in US stocks against the current valuation hurdle. Good luck.

Recently, as expectations for a rate cut by the Federal Reserve diminished and tensions in the Middle East escalated, investors shifted towards safe-haven assets. The three major US stock indices fell by around 1.5%, while the US dollar index briefly rose above 106. US bond yields rebounded after pulling back from their weekend highs, with the current two-year and ten-year yields standing at 4.94% and 4.577%, respectively.

Source: SignalPlus, Economic Calendar
Geopolitical conflicts also affected the cryptocurrency market. Bitcoin plunged from $69,000 to $59,000 last Friday, resulting in over $1 billion in futures long liquidations within 48 hours. The market attributed part of the subsequent rebound to the formal approval by the Hong Kong Securities and Futures Commission (SFC) of Bitcoin and Ethereum spot ETFs, which boosted market confidence. Not only did Hong Kong approve Ethereum spot ETFs ahead of the US, but it also allowed the ETFs to be bought and redeemed in physical form.

Source: SignalPlus & TradingView
During this price decline, cryptocurrency “whales” heavily bought into ETH at its low point. For example, an address starting with “0xE34” seized the opportunity to increase its position by $3.15 million, buying 1000 ETH at the lowest point, bringing its total position to 8300 ETH.

Source: Twitter
In terms of options, despite the price recovering nearly half of its losses, implied volatility remains high, with ETH’s volatility trading about 10% higher than BTC’s. The term structure remains inverted, with Vol Skew at its low point over the past three months (25th percentile).
On the trading front, there were significant Long Put Spread positions in BTC on April 19th and April 26th, possibly providing further protection against the volatility stemming from the halving event on April 18th-20th. On the other hand, price adjustments attracted traders to buy on dips, especially towards the end of May, with bullish options positions, such as Buy BTC 69000-C (850 BTC) and ETH 3800-C (10,542 ETH), becoming the market focus.

Source: Deribit (As of 12APR 8:00 UTC)

ource: SignalPlus, ATM Vol Continues to Decline

Data Source: Deribit, BTC Trading Distribution

Data Source: Deribit, ETHTrading Distribution

Source: Deribit Block Trade

Source: Deribit Block Trade

What a difference a few days makes.
After listening to numerous central bankers and Fed speakers pontificating on the timing of the next rate cut, risk markets were interrupted by a sudden winter chill and further escalation of geopolitical conflicts.
SPX sold off by -1.5% (-92% down day, every sector in the red), treasuries and USD saw a flight-to-quality bid, and crypto suffered >10% losses with Bitcoin cliff-diving from ~$69k on Friday to $59k yesterday, before recovering about half of its losses.

Following a few days of uncooperative inflation data, last Friday ended the week with further unfriendly data prints via a big miss in Chinese trade data (exports -7.5% vs -1.9% expected, imports -1.9% vs +1.0% expected), and well as some ‘stagflationary’-like U-Mich sentiment data out of the US (miss in current conditions and expectations, upside surprise in inflation outlook).

Technical price action has turned decidedly more negative across major equity indices, with China’s CSI 300 testing and failing the break the 200D MA on the upside, while the SPX is on the cusp of breaking its own 200MA for the first time since Q4.

The sudden risk-off comes at a time when (tradfi) investors’ cash allocations are back at the decade lows, according to JPM data, back when fiat was still paying a 0% deposit interest. 2.5 quarters of relentless rallies have forced investors to be fully-invested, or even ‘all-in’ in high beta investments, leaving markets little buffer against any further equity sell-offs from the current levels.

With that being said, assuming the economy doesn’t fall into a recession, the current SPX trajectory is similar to the moves following the end of prior hiking cycles, based on JPM’s study. The key assumption, of course, is a case of non-recession, which still thankfully appears to be the case in the current US economy.

Back on the geopolitical front, while the situation is obviously still highly fluid, it’s interesting to note that spot gold was rallying the last few sessions despite a rise in treasury yields and equity prices, a rare occurrence for sure. It was as if the precious metal had knew something about the rising tension and staged an extended flight-to-quality bid while other assets were caught pretty flat-footed into Friday.

Speaking of flight to quality, one asset class that (disappointly) didn’t hold is Bitcoin’s ‘digital gold’ narrative, as BTC prices collapsed over 10% within the span of minutes as >1bln of levered long futures were mercilessly liquidated across all the large centralized exchanges. On-chain DEXs also reported the largest long liquidations seen in well over a year.

While prices have recovered somewhat (with some signs of de-escalation communique out of the US), the technical damage to crypto has been done with charts breaking bearishing to the downside. The damage to alt-coins has been high as well, with 20–30% weekly drawdowns across the top-20 names, just as the pace of ETF inflows have also slowed recently.

As an old trading saying goes, events themselves rarely are rarely the cause for sharp price actions, but they do reveal the positioning and risk-buffer of current participants. Let’s see how we manage to pick ourselves back up from this latest speed-bump. As we have been saying over the past month, risk management is key, and the winners are usually the ones who can simply stay alive the longest. Hang in there everyone.

Yesterday (11 APR), the U.S. PPI annual rate recorded at 2.1%, slightly lower than the expected 2.2%, mildly soothing the market’s shock over the previous day’s CPI data. However, U.S. Treasury yields still oscillated at high levels, with the two-year/ten-year yields currently at 4.920% /4.533%. Federal Reserve officials are also hastily retracting some of their earlier dovish statements and find themselves in a dilemma amidst persistent high inflation data, a strong economic situation, and the multifaceted pressures of the upcoming elections in the second half of the year.
On the other hand, the European Central Bank announced yesterday that it has maintained the three main interest rates unchanged for the fifth consecutive time and hinted at the start of rate cuts soon. President Lagarde stated that they do not preset the interest rate path, do not rely on the Federal Reserve, and do not target exchange rates.

Source: SignalPlus, Economic Calendar

Source: SignalPlus & TradingView
In the realm of cryptocurrencies, as the halving event approaches, net inflows into BTC ETFs have slowed and actual volatility has further decreased, with forward Future Yield trending downwards by approximately 0.4% to 0.6%. In terms of options, implied volatility has once again decreased by 2–4% Vol. Selling short-term options continues to be favored by traders, primarily focusing on BTC options expiring on 19 APR and 26 APR. ETH trading is relatively balanced, possibly because the exposure of Implied Volatility relative to Realized Volatility has been significantly reduced during the selling activity of the previous few days.

Source: Deribit （As of 12 APR 8:00 UTC）

Source: SignalPlus,ATM Vol continues to decline.

Source: SignalPlus, IV vs RV

Data Source: Deribit, BTC transaction distribution

Data Source: Deribit, ETH transaction distribution

Source: Deribit Block Trade

Source: Deribit Block Trade

Things certainly got a lot trickier for the Fed.
Markets were dealt with a couple of uncooperative inflation prints, particularly with Wednesday’s CPI which showed core prices moving in the wrong direction. March USD CPI rose 0.4% across both core and headline, with the headling YoY pace rising to 3.5% vs 3.2% last month, and core steady at 3.8%. Strength came from another +1.1% increase in energy, 0.5% in services and 0.4% in rental related fields. Supercore CPI rose another 0.65% MoM.

For those keeping track, this is the 3rd consecutive upside miss in core CPI, and has pretty much invalidated the ‘gradual disinflation progress’ that the Fed was hanging on to justify their 3x cuts in the dot-plot. Over the last few sessions, 1y1y rates have jumped by +45bp, June cutting odds have collapsed to ~22%, and the USD has rallied against most currency pairs, as the (ex-equity) market is pretty much giving a vote of no-confidence to Powell’s dovish pivot.

Thankfully for risk markets, yesterday’s PPI was much warmer to the touch, with both headline and core rising 0.2% in March, following respective gains of 0.6% and 0.3% in February. While the headline YoY pace has slowed from the March 2022 records of 11.7%, the recent print of 2.1% YoY is still moving in the wrong direction vs 1.6% in February, and still raising some questions on the validity of the disinflation narrative.
According to Citi and Cleveland estimates, based on the elements from CPI/PPI, the Fed’s preferred core PCE measure is now expected to come in at 0.26% MoM in March, similar to the pace in February, and would still see a fall in the YoY pace from 2.8% down to 2.7% due to base effects and index composition. Core services excluding housing is expected to come in at 0.29% MoM, while supercore CPI is still expected to remain high at 0.65% MoM.

Unsurprisingly, Fed speakers are busy walking back some of their earlier disinflation bravado, with Boston Fed’s Collins suggesting that “it may just take more time than previously thought” and that “CPI figures in Q1 came higher than I’d hoped”. Richmond Fed Barkin stated he wanted to see more “broader disinflation, not just in goods” after the notable overshoot in super-core services in Q1. Lastly, NY Fed Williams address in his Q&A that “rate cuts don’t appear imminent”, alluding that “there are definitely circumstances that we would need higher interest rates, but that’s not my base case.”

Rate cut odds have been pushed down to -22.5% for June, with less than 2 full cuts priced in for the full year now. Furthermore, in terms of scheduling, things are also much trickier now given the timing of the Fed meetings for the rest of the year.
June: Low chance for cutJuly: No release summary of economic projections (less important meeting, likely to keep same pace as June)September: Last meeting before electionNovember: couple of days right after US election
As we can see, should the Fed pass in June (22%), they are unlikely to cut in July (32%) unless data moves dramatically in their favour over a single month (controversial), especially with the meeting being a ‘lighter’ ones being a non-’SEP’ meeting. The next meeting will in September, when the US presidential election campaigns are in full swing, and the Fed will be heavily pressured politically not to act too favourably towards one candidate over the other. Furthermore, the 2H of the year is also likely going to be much more challenging for inflation given much less friendly base effects versus 2H23. Finally, following that, that leaves us with November, which takes place just a few days immediately after the election results; imagine the media headlines and conspiracy theories should the Fed stay on hold all year but decides to cut 2 days after a potential President Trump victory. Needless to say, the Fed has gotten themselves in between a rock and a hard place.

Bond markets have also voted very loudly. With 2yr yields making a rapid approach to 5%, and 10y above 4.50%, Wednesday’s 10yr auction was a terrible affair, with a massive 3.1bp tail and the weakest bid to cover ratio at 2.34x. Direct bidders also saw the lowest take down in 2.5 years at just 14.2%, and street dealers being left with a substantially larger share.
Yesterday’s 30yr bond yield was slightly better, but still on the soft side despite the yield consensus. Tail was 1bp with weak bid to cover, direct bidder participation, and dealers being left with 17% of the float vs 14% on average.

The YTD sell off in bonds have started to hit more concerted levels, with RSI starting to trade into over-sold (prices) territory, though understandably investors are less sanguine about having duration exposures here given the unfriendly mix of inflation with a somewhat cornered Fed.

Despite the doom-and-goom, 3 guesses as to which asset class took it in stride and kept coming back like a prized fighter? Well, long term readers would know the answer already, but equities took the initial rate cut disappointments but felt comfortable to focus on ‘good news is good news’ as stock prices recovered almost all their WTD losses post the economic releases.

The SPX’s incredible outperformance of everything (perhaps except crypto) puts their implied earnings yields vs treasuries at the lowest in almost 20 years, but that has not deterred equity investors from piling into the winners with no observable systemic risks on the horizon.

A similar phenomenon is taking place in corporate bonds as well, where the expectations of a slowdown in QT (ie. Tapering the taper) is causing more outright buying of corporate bond paper, thereby keeping high quality IG spreads at some of the tightest levels in history.

Finally, the billion-dollar question as to when rates would have an effect on stocks, Citi did an analysis where they studied previous ‘hawkish’ scenarios and concluded that we are still some ways away (~40–50bp) from the current rate move being detrimental to equities. Investors also see this as exceptionally unlikely as they believe (rightly) that the Fed is going to lean dovish into strong growth & inflation, so it’s almost unfamothable that they would be willing to completely take out all of the implied rate cuts. As such, investors are choosing to still focus on corporate earnings (coming up), economic growth (strong), and friendly Fed rhetoric to suppor equity sentiment higher. The actual rate cuts are just a bonus as long as the current economic trajectory holds up (for now).

In crypto, BTC prices have been orderly around 70k as dealers have reported some hedging and profit-taking of longs as majors are unable to make any significant headway higher. ETF inflows have slowed and sentiment has been more subdued as we head into the halving, with more sideways price action likely expected in the near future.

Just before the release of the U.S. CPI data, the ten-year yield fell from a high of 4.40% to around 4.36%, with the two-year now at 4.741%. Investors are focusing on the upcoming Federal Reserve policy meeting minutes and key inflation data to track new clues about the timing and magnitude of rate cuts.

Source: SignalPlus, Economic Calendar

Source: SignalPlus & TradingView, The fluctuation range shows a narrowing trend.
In terms of digital currencies, the IBIT ETF saw a recovery in buying flow yesterday, essentially breaking even with the outflow from GBTC. On the price side, BTC has been stabilizing below $7W, with a trend of narrowing fluctuations. As for options, the implied volatility for April has dropped by 3–4% Vol. Looking at the trades, the selling pressure at the end of April for BTC was unusually strong, mostly concentrated at key levels of $75,000/$80,000/$100,000, causing a significant tilt in the front-end Vol Skew once again. The ETH 19 APR 24 call options show a Seagull Flow, indicating a relatively cautious attitude towards downward volatility.

Source: Deribit （As of 10 APR 8:00 UTC）

Source: SignalPlus, ATM Vol

Source: SignalPlus, Vol Skew

Data Source: Deribit, ETH 19 APR 24 shows Seagull Flow; 28 JUN 24 is a 3000–2500 Long Put Spread; 31 MAY 24 is a Long Call for 4000 & 4100.

Data Source: Deribit, BTC trading distribution, a large number of call options sold by the end of April.

Source: Deribit Block Trade

Source: Deribit Block Trade

Focus yesterday was all about positioning ahead of CPI, as Bloomberg reported that a record block future trade in SOFR futures right around the NY open. Prices rose / yields fell subsequently, suggesting that the trade was a buying-flow, and coincided with the 2yr treasury holding a key 4.75–4.80% on the top-side without breaking out any further (yet).

Shortly around the same time, White House economic advisor Brainard stated on a CNBC interview that the government continues to “anticipate continued steady progress on inflation in the coming months”, which traders are taking to suggest that the upcoming is close to expectations or perhaps just a touch on the high side, as the skeptics would assume that she’s aware of the figure ahead of time.

In the meantime, mega asset manager State Street is forecasting 50bp of cuts as early as June, a very aggressive call against the current sentiment with June cutting odds still close to a 50–50 coin flip. Contrasting that call against Apollo’s belief that the Fed might not even cut in 2024, and it’s safe to say that the current market opinion on the Fed is as divided as ever.

Equities flip-flopped, with the SPX falling >1% in a hurry from peak-to-trough, causing trader chatters of whether someone has been made aware of today’s CPI print ahead of time. Prices slowly regained ground and accelerated into the NY close, with the SPX managing to hold its 200d MA again, and traders likely well-positioned (either way) into the inflation print.

Prices are at a trading at important technical levels across many asset classes, with the SPX hovering and so-far holding its 200D MA, 2yr yields holding the YTD top at around 4.80%, and even the USDJPY is holding the 2yr high at ~152 as the BoJ felt compelled to reup it’s hawkish commentary lately (UEDA: WANT TO EVENTUALLY MOVE TO CUT BACK JGB HOLDINGS). While we have no particular view on the CPI print, we would like to think that traders are relatively well hedged at this point, and it’s rare for asset classes to simultaneously break out of so many important technical levels concurrently, so we would have a small bias that the print is close enough to consensus to allow assets to maintain their current trend. Famous last words, perhaps, but let’s see where things come in in 12 hours time. Good luck!