BTC poised to make new highs
With the speculators now a lot less long than before, the chances of BTC continuing to grind higher as more new inflows into the US BTC ETFs is becoming higher.
When short-term speculators buy Bitcoin futures on crypto exchanges, they need to pay a fee to finance these long positions. This is known as the futures funding rate. As such, when the speculators become heavily long, the futures funding rate rises as more and more people borrow to be long the futures.
Usually, when funding rates become exorbitantly high, a correction is due as it becomes expensive to fund these positions. So, when BTC stops to go higher (and it usually does, because the position is heavily skewed to long), the fees that speculators pay to hold the position become unbearable. Then a cascade of selling is usually triggered as everyone bails.
From the chart below, we can see that the funding rate has come from the highs we saw in the frantic rally a few weeks ago. With the speculators now a lot less long than before, the chances of BTC continuing to grind higher as more new inflows into the US BTC ETFs is becoming higher.
Trading Tip
Is the trend really your friend?
The saying "The trend is your friend" is often repeated, but is it really always beneficial? Identifying the trend at various points is critical, as not every entry point is favourable, and being a late entrant is undesirable.
So, when is the best time to enter a trend? A general guideline is to evaluate whether the underlying fundamentals are still sound and whether the market is undervaluing their influence on pricing. If these factors are true, the trend will probably continue for a significant duration.
Another approach is to assess whether the potential reward outweighs the risk of capital invested. If the possible loss is less than half of the expected gain, then the trend is still your ally.
Day Ahead
Nothing noteworthy on the horizon today.
Trading Plan
1. Currencies:
Neutral
2. Commodities:
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: The US stock market was almost unchanged on the day as investors await the US Consumer Price Index data that will be released tomorrow.
(For more timely info on our Trading plan, click HERE)
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: Comments from Fed officials about their views on the possibility of interest rate cuts in the months ahead could influence risk sentiment.
What Happened Yesterday
Fedspeak:
Kashkari (2026 voter, slight hawk): “The bank cannot stop short on the inflation fight.” (Kashkari continues to run his mouth against rate cuts in 2024, previously saying that it’s possible that there may not be a cut this year.)The US Treasury Yield curve inversion widened to 0.36% as the US 2-year bond yield rose +0.05% to 4.78% while the 10-year yield rose +0.03% to 4.42%.
The US stock futures was subdued during the Asian and London trading sessions yesterday. The US stock market opened almost unchanged from Friday. The range trading continued through the New York session as well. The S&P 500 closed almost unchanged at -0.04% (high: +0.29%, low: -0.13%), the Dow Jones edged -0.03% lower (high: +0.28%, low: -0.12%) while the Nasdaq was down -0.05% (high: +0.39%, low: -0.32%).
The crypto market rallied strongly with Bitcoin rising +2.98% and Ether up +7.21% as funding rates for BTC futures have dropped to normal levels (a good indication that leveraged long positions have mostly been liquidated).
Headlines & Market Impact
TSMC wins $6.6 bln US subsidy for Arizona chip production
Notable Snippet: The U.S. Commerce Department said on Monday it would award Taiwan Semiconductor Manufacturing Co's (TSMC) (2330.TW) U.S. unit a $6.6 billion subsidy for advanced semiconductor production in Phoenix, Arizona and up to $5 billion in low-cost government loans.
TSMC agreed to expand its planned investment by $25 billion to $65 billion and to add a third Arizona fab by 2030, Commerce said in announcing the preliminary award. The Taiwanese company will produce the world's most advanced 2 nanometer technology at its second Arizona fab expected to begin production in 2028, the department said.
"These are the chips that underpin all artificial intelligence, and they are the chips that are necessary components for the technologies that we need to underpin our economy, but frankly, a 21st century military and national security apparatus," Commerce Secretary Gina Raimondo said in a statement.
TSMC, the world's largest contract chipmaker and a major supplier to Apple (AAPL.O) and Nvidia (NVDA.O) had previously announced plans to invest $40 billion in Arizona. TSMC expects to begin high-volume production in its first U.S. fab there by the first half of 2025, Commerce said.
Also: The Biden administration plans to announce it is awarding more than $6 billion to South Korea’s Samsung next week to expand its chip output in Taylor, Texas, as it seeks to ramp up chipmaking in the U.S., two people familiar with the matter said.
What we think: The CHIPS act continues to provide a friendly environment for investment in chip manufacturing in the US. The concentration of chip manufacturing in the US will put it ahead in the tech arms race.
Hamas says Gaza truce talks still deadlocked despite reports of progress
Notable Snippet: A Hamas official said on Monday no progress was made at a new round of Gaza ceasefire talks in Cairo also attended by delegations from Israel, Qatar and the U.S., shortly after Egyptian sources said headway had been achieved on the agenda.
Western powers have voiced outrage over what they see as an unacceptably high Palestinian civilian death toll and humanitarian crisis in Gaza arising from Israel’s military onslaught to destroy Hamas in tiny, densely populated Gaza.
Israel and Hamas sent teams to Egypt on Sunday after the arrival on Saturday of CIA Director William Burns, whose presence underlined rising U.S. pressure for a deal that would free hostages held in Gaza and get aid to stricken civilians.
“There is no change in the position of the occupation and therefore, there is nothing new in the Cairo talks,” the Hamas official, who asked not to be named, told Reuters. “There is no progress yet.”
The security sources said both sides had made concessions that could help pave the way for a deal for a truce which - as proposed during previous talks - would be staggered over three stages, with the release of any remaining Israeli hostages and a long-term ceasefire addressed in the second stage.
What we think: While the likelihood of a ceasefire in Gaza remains unlikely despite pressure from the West, a deal would be a boost to risk sentiment.
Fed rate cut expectations for 2024 fall to lowest since October
Notable Snippet: Futures traders have reduced bets on how much the Federal Reserve will cut rates this year to the lowest level since October, LSEG data showed on Monday, amid evidence of continued strength in the U.S. economy.
Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024. The prospect of a first 25 basis point cut in June stood at 49%, down from 57% a week ago, CME Group data showed on Monday.
Expectations for how deeply and how soon the Fed will cut rates have shifted rapidly over the last few months, as investors grow increasingly doubtful that policymakers will be able to lower borrowing costs without sparking an inflationary rebound in a strong economy. The Fed has projected it will cut rates by 75 basis points this year.
Treasury yields, which are swayed by interest rate expectations, have moved higher as a result. The benchmark 10-year yield, which moves inversely to bond prices, hit its highest level since November on Monday. Data on Friday showed unexpected strength in the labour market, the latest in a series of reports reflecting stronger-than-expected growth.
In January, policymakers introduced language saying they would keep the policy rate in its current 5.25%-5.5% range until they have "greater confidence" that inflation is headed to the Fed's 2% goal.
The combination of strong data and limited progress on inflation in the last couple of months has amplified the calls among top officials - including Chair Jerome Powell - to be "patient" as they approach the decision on when to cut rates.
What we think: The significant shift in interest rate cut expectations since the start of the year has not deterred the stock market from continuing its rise. This shows how strong the underlying market is and if the Fed should start to deliver interest rate cuts, the rally will intensify further.
Sentiment
FX
Stock Indices
Best,
Phan Vee Leung
CIO & Founder, TrackRecord