QCP Market Update- 28th August

Powell was decidedly dovish during Jackson Hole, stating that the ‘time has come’ to lower interest rates to avoid the job from market cooling too much.

Last week’s job revision of -800k added to this risk. We believe that the Fed’s reaction function is now more skewed towards preventing a job market collapse, and the bar for a 50bps cut in Sep is much much lower.

The market is currently pricing in 4 cuts in 2024, despite only 3 meetings left.

US equity markets have been resilient, approaching ATHs. However, we remain cautious that US equities might peak again here, given declining trading volumes and NVDA earnings today. NVDA options are pricing up to a 10% move higher tonight.

We believe that any dip in equities (and crypto) will be short-lived. With Powell and the Fed ready to kickstart a rate-cutting cycle, increased liquidity will eventually push risk assets higher. We are finally on the cusp of a rate-cutting cycle.

Trade Idea

It’s not about timing the market, but about time in the market. Given the crosswinds we face right now, timing the next rally is difficult. We prefer products that provide both yield and some upside convexity to capitalize on the move when it happens.

FIXED COUPON CONVERTIBLE (FCC)

• Maturity: 8NOV24
• Coupon Frequency: Weekly from 6SEP24
• Coupon Rate: 30% p.a. if BTC/USD fixes above Coupon Level, 0% p.a. otherwise
• Coupon Level: Above 55,000
• Strike: 50,000
• Protection Level: 46,000
• Redemption: 100% in USD if BTC/USD fixes above Protection Level, 100% in BTC converted at the strike rate otherwise