Don’t fight the waves

Thoughts of the Day

The day before, bitcoin hit record highs over $69,000, then plunged almost 15% before closing down 7%. Despite this volatility, US BTC ETFs saw inflows of $650 million. The Arizona senate is now considering BTC ETF as an investment choice for state pension plans. This is yet another sign that the ETFs are opening Bitcoin as an investment choice for many mainstream investors

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Day Ahead

The ECB is expected to keep interest rates at 4.50% in its monetary policy meeting.

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What Happened Yesterday

Market Movements as of New York Close 06 Mar 24

In February 2024, the US added +140k jobs (expected +150K) as reported by the ADP Employment Change, coming in just after an upward revision for January to +111k (from +107k).

The Bank of Canada kept the overnight interest rate unchanged at 5% and committed to further balance sheet normalisation, citing inflation concerns. The bank plans to continue quantitative tightening until a significant decrease in core inflation occurs, with inflation expected to stay around 3% in the first half of the year, then gradually decrease. GDP growth was noted as weak, and employment growth is lagging behind population growth, with wage pressures showing signs of easing. Governor Macklem stated that considering rate cuts was premature, emphasising the need for more time to ensure inflation approaches the 2% target. The CAD appreciated against the USD in immediate reaction, causing the USDCAD to fall -0.22% in immediate reaction.

Fed Chair Powell testified about the Semi-Annual Monetary Policy Report before the House Financial Services Committee. In his testimony, Powell emphasised the unpredictability of the economic forecast, stating that achieving the 2% inflation target is not guaranteed, and highlighted the dangers of prematurely or belatedly relaxing policy measures. Hence, he said that the Fed plans to carefully review new data, changing economic conditions, and associated risks before making any changes to the federal funds rate. Economically, Powell observed that the labour market’s intensity has lessened and inflation has significantly reduced, yet it continues to exceed the desired target. (More details in headline 1).

In January 2024, job openings decreased by -26k from the prior print of 8.89 million (revised from 9.03 million), reaching 8.86 million, marking the lowest figure in three months and falling short of the market expectations of 8.9 million.

The US Treasury Yield curve inversion widened to 0.44% as the US 2-year bond yield rose +0.01% to 4.55% while the 10-year yield slipped -0.02% to 4.11%. 

Trading of the US stock futures was subdued during the Asian trading hours. However, momentum started to creep in when the London hours began, allowing the S&P 500 futures to rise +0.55% by the time of the New York session.

The US stock market opened higher from Tuesday. It then traded higher on Fed Chair Powell’s testimony. However, it started to see some weakness as the end of the session approached.. As a result, the S&P 500 rose +0.51% (high: +0.97%, low: -0.27%), the Dow Jones increased +0.20% (high: +0.71%, low: -0.04%) while the Nasdaq climbed +0.67% (high: +1.37%, low: -0.24%).

The crypto market traded on a much tamer note compared to the wild price action the day before. ETH led the recovery, rising 7.4% and breaking higher above 3,820 (the high on the day when BTC broke ATH and crashed). BTC recovered too but it only rose 3.7%.
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Headlines & Market Impact

Powell reinforces position that the Fed is not ready to start cutting interest rates

Notable Snippet: “In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks,” he said. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Those remarks were taken verbatim from the Federal Open Market Committee’s statement following its most recent meeting, which concluded Jan. 31.

During the question-and-answer session with House Financial Services Committee members, Powell said he needs to “see a little bit more data” before moving on rates.

“We think because of the strength in the economy and the strength in the labour market and the progress we’ve made, we can approach that step carefully and thoughtfully and with greater confidence,” he said. “When we reach that confidence, the expectation is we will do so sometime this year. We can then begin dialling back that restriction on our policy.”

“We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,” Powell said in the comments. “But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured.”

He noted again that lowering rates too quickly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

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AI chip manufacturing subsidy leaves US officials with tough choices

Notable Snippet:  U.S. officials have earmarked close to $30 billion in subsidies for advanced semiconductor manufacturing, aiming to bring cutting-edge artificial-intelligence chip development and manufacturing to American soil.

But with money set to start flowing in the next few weeks, accomplishing that goal is far from certain, industry experts say. The Biden administration must weigh how much taxpayer money to allocate among Taiwan Semiconductor Manufacturing (2330.TW) a powerful foreign leader, and Intel (INTC.O) a beleaguered homegrown company whose turnaround efforts remain promising but untested.

Betting on AI chips is also challenging in the rapidly evolving industry. Handing out subsidies today to the likes of Intel, TSMC or Samsung Electronics (005930.KS) which is also vying for federal dollars and is the only other firm in the world that can make advanced chips, does not guarantee security in the AI landscape of the future.

“AI itself is moving so quickly, if you focus on today’s AI chips, maybe two years from now it’s a whole different thing,” said Jay Goldberg, chief executive of D2D Advisory, a finance and strategy consulting firm. “As opposed to the (general) road map of advanced chipmaking which we know pretty clearly for the next decade.”

The money will come from the U.S. CHIPS Act, which passed in 2022. Intel, TSMC and Samsung are all building factories in the U.S. and are all likely to receive some degree of U.S. subsidies. The main question is how U.S. officials allocate the money to meet the goal of bolstering AI chip production.

“We don’t manufacture or package any of the leading-edge AI chips needed to fuel the innovation ecosystem and power our most critical defence systems,” U.S. Commerce Secretary Gina Raimondo said in a speech last month. “We cannot build the next generation of technological leadership on such a shaky foundation.”

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BlackRock’s Bitcoin ETF Added a Record 12.6K BTC in Tuesday’s Carnage

Notable Snippet: The BlackRock iShares Bitcoin ETF (IBIT) gobbled up over $778 million worth of bitcoin (BTC) on Tuesday as the fund’s investors apparently bought the dip in the world’s largest crypto.

IBIT added 12,600 bitcoin, breaking previous daily highs of around 10,000. Data from Nasdaq show that the fund recorded trading volumes of more than 107 million shares, or over $3.6 billion price-weighted, surpassing the previous record high of $3.3 billion from last week.

The big inflows came as bitcoin early Tuesday shot to a new all-time high of $69,000 only to sharply reverse within minutes. The price tumbled more than 10% at one point to below $60,000, before a modest recovery to the $63,000 area late in the U.S. trading day.

The BlackRock ETF now holds more than 183,000 bitcoin, closing in on MicroStrategy’s (MSTR) 193,000 stack.

IBIT has remained the most popular bitcoin ETF since the products went live on Jan. 11. Its assets under management are now about $12 billion, the most among its counterparts, followed by Fidelity’s FBTC at $7.2 billion.

Overall, ETF volumes broke the $10 billion mark yesterday, topping last week’s record.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord