PraxisVeritas.io

Main global macro theme driving markets remains an ongoing global growth deceleration and at the margin its disinflationary impacts On a 1-3 month time horizon the clearest trade implications remain broad USD lower and directionally lower 7-10 year yields or 5s30s, 10s30s curve steepeners. A view on risk assets is complicated by the uncertain timing and magnitude of policy easing: do we need lower equities/ wider credit spreads before the easing bias shifts sufficiently in the pro-growth camp? --- Economic data deterioration in recent weeks remains one of the more pronounced in the past 3 years. Economic data surprise indices are negative across most major economies, even as growth rates remain mildly above trend. Fixed income is giving the clearest signs that there is a regime shift afoot in markets. The disinflationary impulse from the growth deceleration is showing up through a re-linking of the breakevens to commodity price returns. There has also been a significant normalisation in the volatility premium that rates have commanded through 2022 and midway through 2024. Until a reflationary shock emerges - some positive policy easing surprise in the US, Euro Area or China most likely - directionally yields across the curve should continue moving lower and 5s30s or 10s30s continue steepening. The PraxisVeritas broad USD regime indicator continues pointing to a likelihood of a falling USD regime in the next few months. Not only is growth in the US continuing to slow faster than in other major economies, but interest rates are now also coming down more quickly.

After the July FOMC we are likely entering a period where markets will try to push the Fed into front-loading an easing cycle. The recent shift in dynamics along the curve, where the front end continues inverting to price more cuts whereas the backend is steepening is the best clue that this process is now unfolding. Cross-asset volatility is generally low and credit spreads are historically tight, so there is some room for a decent market drawdown. While near-term the USD could stay bid, the medium-term trend is still likely lower as both growth differentials and now interest rate differentials are moving against it. Any near-term pressures on crypto are likely to be absorbed as soon as the market realizes that downside pressures on policy rates, real interest rates and the broad USD work to lengthen the current cycle.

In recent weeks, market focus on large-scale sellers like the German government and Mt. Gox has intensified. Given the widespread attention these risk factors have attracted, the natural question at this point is how we can assess when their influence wanes? Read all about Crypto for Sale: Price Impacts of Germany’s BTC liquidation, Mt. Gox and ETF Flows → https://lnkd.in/guEPkC2D PraxisVeritas.io

Why has ETH underperformed the broader crypto market so far this year? In this report, we delve into the factors driving ETH prices, discuss why we estimate $3-5 bln of potential net inflows into potential ETH ETFs upon final approval, and explain how that could result in an ETH price rally. Unlock here → https://lnkd.in/eUyveeiX

In an asset class as volatile as crypto, significant price corrections can occur during uptrends or vice versa during downtrends. In real time, how can you use macro indicators systematically to help improve confidence about the kind of price regime we find ourselves in? Check out this piece with Gemini Institutional for more details:

How do macro factors drive crypto markets? In the latest report from Praxis Veritas and Gemini’s research series Institutional Insights, we look into various indicators that over time may provide forward-looking information about crypto price action. Download → https://lnkd.in/eB78VVSg

Rising Correlations Between Crypto and Macro Assets Over Past Month Correlation coefficients and regression sensitivities between BTC and major macro assets have been rising over the past month. First chart shows the rolling 100 day spearman correlation between BTC log returns and QQQ, TIP, SPGSCI Commodity Index and GLD. All have seen a rise recently, particularly for commodities and tech stocks. Averaging the 4 correlation coefficients together into a summary cross-asset metric shows the highest reading in about 1 year. Similarly, when looking at the rolling 3 month median regression sensitivity coefficient of BTC on the GS US Financial Conditions Index shows the most significant relationship between the two since Q3-2021. Lastly, the 1 month historical volatility comparison between BTCUSD and a cross-asset aggregate shows recent BTC vol premia at their narrowest so far this year.

Some relevant metrics for assessing financial conditions There are many different financial condition indices out there, from the minimalistic to the all-encompassing. In practice, some indicators tend to be more relevant than others, both for trading markets and assessing risks to the outlook for the economy. Below are two such metrics - US investment grade credit spreads in blue and a measure of the intensity of cross-asset correlation in major macro markets in green. Today, credit spreads are at historically tight levels after a prolonged multi-quarter decline. Further spread tightening is unlikely from here given the already low percentile range we are in. However, in an environment of generally supportive economic conditions and a central bank which has demonstrated the willingness to step in and prevent serious dislocations in credit markets, we could see spreads remain relatively tight for some time to come. The second measure reflects the degree of cross-asset correlation in a basket of the most macro relevant markets (US and Global Equities, Treasury and Credit Price Indices, Broad Commodities and Copper, Cyclically-Sensitive Currencies). Calculated using a rolling 100 day window, the closer to 1 the more these assets are moving in a perfectly correlated fashion. The closer to 0 the more idiosyncratic the price changes among them. Historically, periods of high and rising cross-asset correlations have been dominated by significant risk aversion. Currently, at 0.43 we are in an environment of relatively low and declining correlations. Overall, financial conditions today continue to remain accommodative, with no signs in the indicators described above of a shift in this regime.

Global economic data metrics continue improving on aggregate, with a broadening share of major economies adding to these trends. As we have seen in recent months, US outperformance has stagnated and is now retrenching, with the US consumer coming under pressure from high inflation and high debt servicing costs. Inflation factors, both market-derived and economic data based have rebounded recently. At the margin situation hasn't changed markedly over the past month. Treasury markets however continue recoupling with commodity price dynamics, a sign that inflation developments remain salient for markets across the curve. Policy factors remain benign at the margin. FOMC expectations which repriced hawkishly through Q1-2024 have been oscillating in a range since. Market Regime Probabilities Forward-looking market regime probabilities continue to show a difficult environment for the back-end of the curve (a rising yield regime). The positive global growth backdrop has contributed to a reduction in downside regime risks for US equities. However, risk/reward remains more interesting in the Euro Area and in China-linked trades, where policy easing is taking place more assertively at the moment. Outlook is uncertain for the broad USD. Narrowing US growth differentials should continue to weigh on the DXY, while rate differentials across the curve are likely to support it.