Monday, Mar 6, 2023

China's growth forecast, ETH yield vs bonds, stablecoin tension

“The real danger is not that computers will begin to think like men, but that men will begin to think like computers.” – Sydney J. Harris ||

Hi everyone, and happy Monday! I hope you all had a restful weekend, because I have a feeling this week will be intense. Since many of you are new here (welcome! and thank you!), I’ll introduce myself again: I’m Noelle Acheson, and I’ve been writing crypto-focused newsletters for over six years, first for CoinDesk and more recently for Genesis Trading. Now that I’m focusing on independent research (the topic is in the newsletter name), it felt only natural to continue. Here I focus on the macro impact of crypto, and dive deeper into market and other trend influences – no protocol reviews, bankruptcy gossip or anything else I don’t deep hugely relevant to the bigger picture narratives, and definitely no investment advice!

If you find this useful, do consider sharing with friends and colleagues.

And if you arrived here from somewhere other than your inbox, or if this was shared with you, I hope you’ll consider subscribing to have full access every weekday day. The email that goes out on Saturdays is open to all.

MARKETS

Headwinds from the East

The kick-off of the annual meeting of the National People’s Congress this weekend in Beijing produced a couple of surprises that could have a significant bearing on the outlook for risk assets.

First, China’s GDP target for 2023 was set at the unexpectedly low level of 5%, its lowest for more than three decades in spite of economic data that has been surprising to the upside – you may remember that last week China’s manufacturing and non-manufacturing PMI indices for February came in notably higher than expected and higher than those for January, with manufacturing posting its strongest improvement in more than a decade.

This sends a signal that the central bank will perhaps not feel obliged to help achieve a higher target by injecting more liquidity into the market. After broad expectations of further rate cuts in Q2, last week China swaps traders started pricing in higher interest rates. China’s central bank moving toward a tighter policy is likely to have a negative impact on global liquidity, which in turn could hurt the recent tailwind behind risk assets popular with Asia-based investors – such as, you guessed it, crypto assets.

The modest expectation also suggests that China is perhaps not yet done with its clampdowns, such as that on the tech sector last year. One area of the economy singled out by Premier Li Keqiang in his farewell speech yesterday is the real estate sector. This implies some pain for Chinese investors as well as families, since real estate is the backbone of individual savings, and the uncertainty as well as the hit to consumption could slow growth amid a further reduction of market liquidity.