The Quiet Bull

Thoughts of the Day

Despite negative media coverage and regulatory challenges, bitcoin has experienced significant growth, up over 80% this year and doubling since November. The lack of attention and surprise surrounding its performance suggests that it may still have substantial potential for further gains.

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Day Ahead

The Reserve Bank of Australia is expected to hike interest rates by +0.25% in their monetary policy meeting as it commits to bring down inflation in Australia to the 2%-3% band (currently at 5.6%).

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What Happened Yesterday

Market Movements as of New York Close 3 Jul 23
  • The Reserve Bank of Australia surprised markets by holding rates unchanged in its monetary policy meeting (vs a hike of +0.25% expected). The AUD fell more than -0.40% against the USD in reaction to the news from the 0.667 level to the 0.665 level. The move is likely due to the undershoot of the recent Monthly CPI indicator print which came in at 5.6% (vs 6.1% expected).
  • The US Treasury Yield curve widened slightly to 1.08% as the 2yr bond yield rose +0.07% to 4.94% while the 10 yr bond yield rose +0.05% to 3.86%.
  • The US stock futures did not make much headway during the subdued Asian and London trading sessions.
  • The US stock market opened almost unchanged from Friday. The market traded within a small range with a slight positive drift. Consequently, the S&P 500 closed the day higher at +0.12% (intraday high: +0.14%, low: -0.18%), the Dow Jones inched higher by +0.03% (intraday high: +0.17%, low: -0.35%) while the Nasdaq gained +0.19% (intraday high: +0.35%, low: -0.17%). Trading activity was subdued because of the early close ahead of the US Independence day holiday.
  • The crypto market rose on Monday as the Cboe’s BZX Exchange had refiled its applications for several spot bitcoin exchange-traded funds (ETFs). These applications include applications from Fidelity, WisdomTree and ARK Invest.  Bitcoin rose +1.7% while Ether increased +0.9%.
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Headlines & Market Impact

China to restrict exports of chipmaking materials as US mulls new curbs

Notable Snippet: China will control exports of some metals widely used in the semiconductor industry, its commerce ministry announced on Monday, the latest salvo in an escalating war over access to high-tech microchips between Beijing and the United States.

The controls, which China said were aimed at protecting national security and interests, will require exporters to seek permission to ship some gallium and germanium products.

China’s controls, to take effect from August 1, will apply to eight gallium-related products: gallium antimonide, gallium arsenide, gallium metal, gallium nitride, gallium oxide, gallium phosphide, gallium selenide and indium gallium arsenide.

They will also apply to six germanium products: germanium dioxide, germanium epitaxial growth substrate, germanium ingot, germanium metal, germanium tetrachloride and zinc germanium phosphide.

Germanium is also used in infrared technology, fibre optic cables and solar cells.

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EU and Japan look to partner on A.I. and chips as China ‘de-risking’ strategy continues

Notable Snippet: The European Union is looking to cooperate more closely with Japan on key technologies such as artificial intelligence, the bloc’s industry chief said, as the coalition looks to reduce its reliance on China in certain areas.

EU Commissioner Thierry Breton is meeting with the Japanese government on Monday, and artificial intelligence will be “very high” on his agenda, he said in a video posted on Twitter on Sunday.

Breton also said there will be an EU-Japan Digital Partnership council, to discuss areas including quantum and high-performance computing. The EU held a similar council with South Korea last week, in which the two sides agreed to cooperate on technologies such as AI and cybersecurity.

Partnerships with key Asian countries with strong technology sectors come as the EU looks to “de-risk” from China — a different approach from that of the U.S., which has sought to decouple its economy from Beijing.

Part of that EU strategy involves deepening the relationship with allied countries around technology.

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US manufacturing slump deepens, factory gate price pressures subdued

Notable Snippet: U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic, but price pressures at the factory gate continued to deflate, a silver lining for the economy.

Shrinking activity left factories resorting to layoffs, the survey from the Institute for Supply Management (ISM) showed on Monday. ISM Manufacturing Business Survey Committee Chair Timothy Fiore described the practice as happening “to a greater extent than in prior months.”

But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits and housing starts, suggest the economy continues to grind along.

“This provides further reason to suspect that a recession is on the horizon,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics. “The ISM survey adds to the evidence that core goods prices will start falling again soon.”

The ISM’s manufacturing PMI dropped to 46.0 last month, the lowest reading since May 2020, from 46.9 in May. That marked the eighth straight month that the PMI stayed below the 50 threshold, which indicates contraction in manufacturing, the longest such stretch since the Great Recession.

What we think: Lower prints in economic numbers is likely good for risk assets despite the increased recession fears as it puts the Federal Reserve on the backfoot when it comes to hiking further.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord