This week, crypto continues to be dominated by macro events, with increasing signs that the global financial system is coming under pressure at higher rates.
The Macro Front
1) The UK’s BOE intervention on the back of UK budget, driven by aggressive tax cuts
This intervention led to margin calls in the UK pensions market due to liability hedging.
As Alf Peccatiello of The Macro Compass puts it:
“The pension fund industry dynamics could easily force Central Banks' hands at the very moment when credibility is the most at stake. The BoE didn't ''pivot''— they simply had to step in to temporarily stop the bleeding in a systematically important sector. By doing so, they lower (real) interest rates and actively fight bond vigilantes demanding higher yields to fund external deficits and their very own credibility in fighting inflation.”
On Monday, the UK government walked back on the 45p tax rate and GBP rose
2) Credit Suisse and Deutsche Bank face deep concern from the market
This week, Credit Suisse saw its shares slide by as much as 11.5% and its bonds hit record lows before clawing back some of the losses amid concerns over the bank’s creditworthiness in the wake on bond market volatility.
As a sign that the market is calming, Credit Suisse's five-year credit default swaps fell around 13 basis points to 308.32 bps from Monday's closing level of 321.10 bps, according to S&P Global Market Intelligence.
Deutsche Bank is also in the unfortunate spotlight with Credit Suisse as trading under ‘distressed valuations’:
3) The U.S. macro environment continues to hold up though JOLTS suggested the labor market may be cooling
Initial filings for unemployment claims fell to their lowest level in five months, a sign that the labor market is strengthening even as the Federal Reserve is trying to slow things down.
Also while Fed speakers continue to focus on the strong economy, Fed Vice Chairwoman Lael Brainard noted in her speech on Friday at a conference in New York the impact rate hikes are having, which is something of a change in tone:
“We are attentive to financial vulnerabilities that could be exacerbated by the advent of additional adverse shocks.” “[on hiking rates] we are committed to avoiding pulling back prematurely. We also recognize that risks may become more two-sided at some point.”
Also in the news, was billionaire investor Stan Druckenmiller following a rather bearish CNBC interview who commented:
“Our central case is a hard landing by the end of ’23. I will be stunned if we don’t have recession in ’23. I don’t know the timing but certainly by the end of ’23. I will not be surprised if it’s not larger than the so-called average garden variety.”
The Crypto Front
ATOM continued to underperform following inflationary tokenomics announced last week;
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