Friday, June 23, 2023

Lots of macro stuff today, and what the weekend market might have in store for crypto

“Time flies like an arrow. Fruit flies like a banana.” – Groucho Marx ||

Hi all, and happy Friday! Today’s email is largely macro-focused but obviously crypto is always present, especially since I talk about the market mispricing rate hikes. Crypto may be marching to a different drummer these days, but macro considerations are still one of its drivers.

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WHAT I’M WATCHING

Too much, too fast. The swaps market is now pricing in an almost 80% probability of another US rate hike in July, but then a pause until the end of the year. I think it’s wrong, which is not unusual, but this time I think it’s being overly pessimistic. That is unusual for me. More on this below.

Deeper we go. Yesterday, the US Conference Board published its Leading Economic Index for May, which showed an even faster decline than in April. The Coincident Economic Index increased, though. More on this below.

Where’s the volatility? The VIX index measures implied equities volatility. It has been heading down fast since late May. The last time it was this low was in January 2020. That is just wild.

The weekend setup for crypto. The typically lower trading volumes on crypto markets over the weekend can deliver some brusque moves, which tend to be more puzzling than sharp moves at other times. If you have a large buy or sell order, why do it on the weekend when you’ll suffer higher-than-normal slippage? For this reason, sharp weekend moves tend to be derivatives-related, with a scramble to cover a position or a systematic dump of collateral on the market. Also for this reason, they tend to adjust relatively quickly – but the markets this week have been anything but normal (going by recent trends), so anything could happen. That said, I sincerely hope you won’t be checking your screen all weekend just in case.

MARKETS

What if the bond market’s wrong