SignalPlus Macro Analysis: Strong inflows into BTC ETFs, bullish sentiment heats up

Original title: "SignalPlus Macro Research Special Edition: Crossing the Rubicon"

Original source: SignalPlus

The assassination attempt on former President Trump during his speech in Pennsylvania has undoubtedly become the focus of the news over the weekend. After the assassination attempt failed, the former president's chances of winning the election have further jumped to around 70%.

While the United States may be a divided country with increasingly polarized views, the country is united on issues involving homeland security and attacks on politicians. The failed assassination attempt on former President Reagan in 1981 may have contributed to his subsequent overwhelming victory in the election, and this election is only a few months away from the November vote, and there is a greater chance of the same situation. Now it seems that the election outcome depends almost entirely on whether Trump can maintain his current advantage, and the liberal media and the opposition will have to restrain their tough criticism in the next campaign.

Macro markets are likely to trade on a Trump win as a default scenario, which would have significant implications for all asset classes. While we are not political experts, we believe a second Trump administration would likely adopt tougher policies.

Currently, Republicans and Trump supporters believe that:

· An attempted political witch hunt by the opposition to sentence a former president to 700 years in prison

· A recent push for voting rights for non-citizens that could allow Trump’s opponents to gain a large share of the immigrant vote

· An assassination attempt in broad daylight with apparent serious security gaps

If Trump is re-elected, the market may expect:

· Aggressive fiscal spending and profligate tax policies

· Further escalation of tensions between China and the United States

· More pressure on Europe to pay more than $200 billion in NATO protection fees, especially in light of the ongoing Russia-Ukraine conflict

· A blockade of illegal immigration

· Similar to the Supreme Court's turn to conservatives during the first term, a radical "cleansing" of key civil servants, government employees, and other Washington ecosystem personnel

The aggressive spending plan will further aggravate the already severe bond supply and budget deficit situation, and bond yields are likely to experience a steep bearish trend. During Trump's first term, the 10-year yield rose by about 200 basis points in 18 months.

Amid Trump's potential second term, both US economic growth and inflation are slowing. Last week's CPI data fell to its lowest level since 2021 as housing costs finally slowed, with the core CPI up 0.1% from May, the slowest pace in 3 years, and the headline index falling for the first time since the pandemic.

The market is absolutely viewing Thursday's CPI as a watershed for the current cycle, with the market pricing in a 95% chance of a rate cut in September, and we can imagine that the Trump administration will certainly pressure the Fed to conduct more aggressive rate easing in 2025 as the next wave of stimulus.

Speaking of a slowing economy, earnings from the largest U.S. banks confirm a general deterioration in consumer conditions, with most banks setting aside more cash to deal with defaults, and loan write-offs at Citigroup/Wells Fargo/JPMorgan Chase all rising as consumers deplete their savings from the pandemic. Credit card delinquencies at smaller banks have risen to a 30-year high, and for the banking industry as a whole to a 10-year high.

Last Friday’s U-M consumer confidence index also came in below expectations for the fourth month in a row, with respondents saying a weak job market and high prices have dampened overall confidence. The official survey report states: "Nearly half of consumers spontaneously complained that high prices are eroding their living standards, approaching the record high set two years ago."

Outside the US, economic data last week also confirmed the weak recovery of the Chinese economy, with CPI up 0.2% year-on-year, lower than the expected 0.4%, and loan and credit growth both hitting record lows in June. End-user demand is weak. Coupled with the equally sluggish new RMB loans, social financing scale and import data (-2.3% year-on-year, lower than the expected +2.5%), the Chinese government is undoubtedly disappointed with the pace of recovery as it enters the Third Plenary Session in July.

Back to the US stock market, the SPX index continues to hover near its historical highs, and shorts are capitulating. JPMorgan estimates that long equity futures positioning is back to its highest level in the past 10 years (as a percentage of open interest), while cash allocations have breached their lowest level since 2000. However, despite the higher share prices, global new stock supply remained negative for the third consecutive year, and the IPO market remained closed to most issuers.

Interestingly, macro bears may be surprised to see that the bond-equity correlation (yields don’t always move unilaterally with stock prices) shows that the US economy has never been at risk of a recession over the past two years, with the correlation swinging between soft landings, no landings, and occasional expansionary expectations during strong data bursts. This is a reminder that while macro assets are extremely forward-looking and self-correcting, it is often the interaction between assets that tells the full story, not the absolute level of a single variable (such as an inverted yield curve). Keep an eye out for when yields fall along with stock prices, that’s the first real sign that the market is finally convinced that we are heading into a slowdown phase.

On the crypto side, prices are clearly benefiting from the rising odds of a Trump victory, with BTC rebounding to around $62,500, a rebound of more than 10% after the previous sell-off. The Bitcoin Conference confirmed that Trump will still attend the conference in Nashville at the end of July, and will continue to support cryptocurrencies as claimed in his campaign statement.

In terms of capital flows, BTC spot ETFs saw a large inflow last Friday, totaling $310 million, the largest inflow since June 5. According to Arkham data, investors believe that the German government has sold all BTC and returned to the bargain-hunting mode. Nevertheless, the market still needs to deal with the repayment problem of Mt. Gox, and it is expected that about 140,000 BTC (worth $8.5 billion) will hit the market. However, there is always light at the end of the tunnel. The upcoming September rate cut and Trump's possible victory are expected to provide further support for cryptocurrencies.

In terms of price action, it is reassuring that BTC has managed to hold the $50,000 area during the recent sell-off, which was the breakout area after BTC was approved in January, and market sentiment may shift to selling puts/buying on dips.

Good luck trading everyone!

Original link

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群： https://t.me/theblockbeats

Telegram 交流群： https://t.me/BlockBeats_App

Twitter 官方账号： https://twitter.com/BlockBeatsAsia