Last week, the global risk asset market rose across the board, with SP500 +0.5%, Nas100 +1%, Hang Seng Index and CSI 300 up 4.7% and 0.6% respectively, and Nikkei 225 and Korea Composite Index both up 0.8%. Most of the major government bond yields fell, and the 10-year US Treasury yield fell sharply by 17bp to 4.50%. Due to the release of a number of key data and policies, the market's uncertainty about interest rates has temporarily settled. The market's expectations for a possible slowdown in inflation have increased, providing the Federal Reserve with room to cut interest rates. The market has thus entered a round of valuation repair/oversold rebound.
Things that reassured the market included the lower-than-expected US non-farm payrolls report, ISM manufacturing PMI, service industry index, dovish signals from FOMC and Powell, Apple and Amazon's 100 billion buybacks and strong earnings, and Hamas and Israel's peace talks mediated by major powers. The only slightly disturbing thing was the ECI labor costs and the Ministry of Finance's quarterly bond issuance that exceeded expectations.
First, to the surprise of Wall Street on Monday, the U.S. Treasury Department not only did not lower but significantly raised the expected borrowing scale for this quarter by 20% to $243 billion, and raised the cash balance at the end of the third quarter from $750 billion to $850 billion. All this information is saying that the volume of Treasury bond issuance will increase in the future, further extracting liquidity from the market, and there is also a risk of further increase in Treasury bond interest rates. For this new debt plan, the Treasury Department clarified that it did not take the Fed's balance sheet reduction adjustment into consideration, and still assumed that the Fed would reduce its balance sheet at a rate of $60 billion per month in the next two quarters. Secondly, the employment cost index ECI showed that the cost index rose by 1.2% month-on-month in the first quarter, significantly higher than the expected 0.9%. The annual increase was 4.2%, also higher than the expected 4.0%, and the same as the previous quarter. The trend of wage decline has stagnated to a limited extent. The Fed needs this number to be at a level of 3% to 3.5% to meet the 2% inflation target, which makes the market feel that the possibility of Powell's hawkishness on Wednesday has increased, which may be the background of the market crash in the first half of this week. (The good news is that long-term Treasury bonds will not see a particularly large adjustment, and a small-scale high-cost bond repurchase program was announced)
However, surprisingly, the FOMC's statement and Powell's Q&A were both dovish. First, the Fed did not give any hints about the future trend of inflation in the statement, even though the data showed that inflation was stubborn. The next dovish part was the Fed's statement on slowing down the reduction of its balance sheet. This time, the Fed decided to slow down the reduction of its balance sheet from June, and changed it from the original 60 billion to 25 billion, which was more than the market expected. The Fed had previously expressed that most officials were inclined to halve it, that is, to 30 billion. Although the extra 5 billion has little impact, it can easily be interpreted as a dovish signal. Secondly, at the press conference, Powell first denied the idea of a possible rate hike in the future, and emphasized that the policy was already tight enough, and pointed out that the labor market had loosened up, and waiting was the current tendency of officials. Powell also mentioned the lag of housing inflation, saying that as long as housing inflation remains low, then housing inflation will definitely come down in the future, but it is not clear when it will come down. So the press conference was also dovish, and there was no verbal hedge against the dovish statement as sometimes happens.
In terms of data, the US non-farm payrolls report for April increased by 175k, lower than the market expectation of 240k, and the unemployment rate rose slightly to 3.9%, while the average hourly wage growth was lower than expected, with a monthly growth rate of 0.20%, lower than the expected 0.3%. Finally, the market has waited for the situation where all three core sub-items have weakened. Combined with the JOLTS job vacancies falling to the lowest point in three years, it shows that the tightness in the labor market may be easing. Combined with the double decline in the April ISM PMI on the same day and the dovish Fed the day before, the market confirmed the reversal of sentiment. We saw a sharp rise in stocks, cryptocurrencies, and bonds, while the US dollar, gold, and crude oil weakened.
It is worth noting that the largest decline in jobs was in temporary labor services, which fell by 16,000. Temporary workers are usually considered a leading indicator of the employment market because when demand starts to decline, temporary labor services are the first to decrease. In the past few months, temporary jobs have been declining, but this has been overlooked because of the strong overall employment. From the GDP in the first quarter to the financial performance of consumer companies such as McDonald's and Starbucks and the management's statement (weak consumers), to this non-agricultural and PMI, there are more and more data showing that the economy does not seem to be that good. In other words, we should now start to pay attention to the possible downside risks of the economy. If the economy declines unexpectedly, it may affect the investment logic for the whole year. (But at this stage, it is still a debate between a soft landing and re-inflation)
For example, the leading indicator ISM new orders index has fallen for three consecutive months
Bad news has turned into good news for the market, with interest rate markets now fully pricing in two rate cuts by 2024 and another three in 2025:
The first rate cut is expected to be confirmed in September:
In addition, due to the easing of geopolitical tensions, the slowdown of the US economy, and the unexpected increase in EIA crude oil inventories, crude oil prices rose by 7%. Gold prices fell by -1.4% to $2,301 per ounce.
Gaza's efforts to reach a ceasefire agreement and release hostages have made some progress: the two sides resumed negotiations in Cairo on Saturday. However, there are still major differences between the two sides. Hamas requires that any agreement must end the Gaza war as a condition, while Israel requires the release of hostages and the permanent disarmament and dissolution of Hamas.
The yen fluctuated sharply, and the Bank of Japan may intervene: On April 29, the yen fell below 160, and then rose to around 156. On April 30, the Bank of Japan said that its current account may decrease by 7.56 trillion yen, which is significantly higher than market expectations, indicating that the Bank of Japan may have intervened in the exchange rate by about 5.5 trillion yen.
However, government intervention once again proved to be useless. After spending 35 billion US dollars, the exchange rate was only pulled back from 160 to 156. Later, the yen exchange rate continued to rise due to the aforementioned factors.
[Apple: $110 billion buyback, 4% dividend yield]
Apple released second-quarter results that exceeded expectations (market expectations were pessimistic due to weak iPhone revenue) and announced the largest stock buyback plan in U.S. history, $110 billion, while increasing dividends by 4% to 25 cents per share. Apple's stock price jumped 6%. Apple broke its own record for the largest buyback and has increased its dividend rate for 12 consecutive quarters. Analysts believe that this move may mean that Apple is becoming a value stock that returns funds to shareholders, rather than a high-powered growth stock that needs cash for research and development or expansion. (By the way, there are a lot of A-shares with dividend yields higher than 4, and many of them have fallen below net assets)
As of the release of the financial report, Apple's stock price has fallen by more than 8%, far less than the 6% increase in the S&P 500 index:
Apple plans to launch a new iPad on the 7th of this week, which may be to boost iPad sales in the future. The company has not launched a new model since 2022, which may be the reason for the sluggish iPad revenue. Next month is Apple's developer conference, when investors will pay close attention to Apple's announced AI strategy. Whether this new strategy can help Apple find new growth points is worth paying attention to.
[Tesla failed to continue the strong rebound of the previous week and closed down 3.7% last week]
The previous focus was that China gave Tesla's autonomous driving FSD the green light, although the specific details are still unknown. After returning to the United States from BJ, Musk suddenly disbanded the entire company's supercharging team and decided not to advance the next-generation integrated die-casting GIGCASTING plan, casting a layer of uncertainty on the company's prospects.
Currently, it costs 64,000 RMB, or about 8,840 USD, to buy FSD in China, which is a bit expensive. In addition, according to an article from 36Kr, Tesla's FSD is mainly trained with overseas data, and it may not be suitable for China. In the early stage, it may help to increase Tesla's revenue driven by the novelty, but whether it will be sustainable in the end depends on the performance of FSD on Chinese roads. The article also mentioned that China's roads are much more complicated than those in the United States, and the amount of training required will be higher than that in the United States, but Tesla's data center in Shanghai cannot be connected to the supercomputers in the United States, and Nvidia's GPU is also restricted, so there is no way to completely let go. The data trained locally by China's own car companies is much higher, so although Tesla is indeed leading in technology, it may not be able to form a dimensionality reduction attack.
Tesla's business scope is actually very broad, including automobiles, energy, batteries, autonomous driving and robots, etc., and each field requires continuous investment. From the last financial report, we can see that Tesla's free cash flow is negative, of which AI capital expenditures cost $1 billion, and the overall cash position has decreased by 2.2 billion, while the company currently has 26.9 billion in cash on hand. Although it is not a problem yet, the trend is not good. Then the company's largest automotive business has weak growth, profits have fallen sharply, and it seems difficult to improve in the future. On the other side, expenses are still continuing, but revenue has dropped significantly, so it is necessary to re-plan the priorities of each business.
S&P 500 +568%, Berkshire Hathaway +554%
[Coinbase's first quarter report exceeded expectations, and ETFs drove institutional trading volume to a record high]
Thanks to the rebound in Bitcoin prices and the listing of spot ETFs, the first-quarter performance of the largest cryptocurrency exchange in the United States doubled year-on-year, and net profit turned from loss to profit year-on-year, far exceeding expectations.
On Thursday, May 2, after the U.S. stock market closed, Coinbase released its first quarter earnings report for fiscal year 2024. The financial report shows that the company's revenue in the first quarter was $1.64 billion, which was expected to be $1.34 billion, a year-on-year increase of 113%. With the support of $737 million in unrealized gains on crypto assets, Coinbase achieved a net profit of $1.18 billion in the first quarter, achieving profitability for the second consecutive quarter, turning losses into profits year-on-year, compared with a loss of $78.9 million in the same period last year.
After the earnings report was released, Coinbase rose slightly but still closed down 2.8% for the week. So far this year, the company's stock price has risen by more than 45%.
Crypto Market Overview
Bitcoin hashrate continues to remain high:
After the mining difficulty was halved, it was raised twice in a row:
Rune fever was short-lived:
GBTC is the main source of selling pressure for all spot Bitcoin ETFs, but the trend unexpectedly changed: For the first time since the launch of the spot Bitcoin ETF, GBTC saw a daily net inflow of +63 million USD (1020 BTC) on Friday
Although there was still a net outflow last week, net inflows jumped to $380 million on Friday, the largest since March 26. Just on Wednesday, investors sold US spot Bitcoin ETFs at the fastest rate ever. These 11 ETFs had a cumulative net outflow of $563.7 million:
Hedge funds in the CME futures market began reducing their record net short positions last week, with net shorts back to levels seen seven weeks ago:
The contract market rate remained at a low level in this bull market, and the deepest negative value appeared last week:
March 13th was the day when the market shifted from pricing in more rate cuts to less than the Fed’s “dot plot,” and that was the day Bitcoin hit a new all-time high of $73,157.
Notable crypto news:
- Manuel Nordeste, vice president of Fidelity Digital Assets, said at an event in London that they are working with pension funds that want to allocate Bitcoin.
- “Many traditional and reputable companies are beginning to participate in Bitcoin in ways that were never possible before,” said Hunter Horseley , CEO of Bitwise .
- BlackRock said it is meeting with a range of investors to discuss a Bitcoin ETF, including “pensions, endowments, sovereign wealth funds, insurance companies.”
- A BTC ETF whale has emerged in Hong Kong, named Ovata Capital Management . The fund is distributed in four different US stock ETFs with a total allocation of $60 million . They said their goal is to "generate absolute returns that are unrelated to the overall performance of the stock market."
- Well-known European institutions disclosed their BTC holdings in 13F documents: Swiss bank Lombard Odier ($209B AUM) owns $1.5 million worth of IBIT; BNP Paribas bought 1,030 shares of IBIT tokens in the first quarter.
[Hotly discussed overseas 'ABC']
Recently, as the earnings season came to an end, the Politburo meeting set the tone, expectations for easing and reform began to strengthen, the room for speculation in the US stock market narrowed, and global funds had a strong willingness to allocate undervalued Chinese assets. The risk appetite of the Chinese market has increased significantly. The ABC strategy discussed in the fall and winter of last year has failed:
EPFR's Chinese capital inflows turned positive and hit the largest net inflow in 8 weeks:
Lagging behind northbound funds by one week, miss the pump in the past 5 weeks:
This week is a week with relatively light macro data, with the main focus on speeches by several Federal Reserve officials and the progress of the Gaza ceasefire agreement. If there are no surprises, the upward trend may continue moderately.
