Buy in May and Go Away (Core Strategy Rebalance)
No Shortage of Uncertainty
We generally refrain from overly frequent adjustments to our allocation strategy. However, recent developments have shifted the immediate-term risk/reward balance for our Core Strategy, necessitating a relatively more cautious approach. Based on our analysis below, we also have a good idea for when the market will find a more stable footing.
The DXY has rallied significantly, and the long end of the yield curve has experienced a persistent steepening amidst rising inflation expectations and consistent supply of coupon issuance from the treasury. This past weekend was particularly detrimental to the crypto market, influenced by a confluence of factors:
- Geopolitical tensions
- Tax-related selling and reduced fiscal flows (with tax payments to the treasury exceeding disbursements into the private sector)
- A persistent rise in the US 10-year Treasury yield, driven by strong growth figures (e.g., retail sales exceeding consensus) and inflation expectations
This combination has resulted in a significant drawdown, certainly reminiscent of mid-cycle drawdowns in previous bull markets, yet notable in its magnitude, with many longer-tail assets erasing a month or two of gains within days.
The sell-off, coupled with ongoing uncertainty around ...Reports you may have missed
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LDO Risk/Reward Looks Good Here, Immediate-term Macro Picture Still Uncertain (Core Strategy Rebalance)
FLOWS AND SENTIMENT STILL SUBDUED Last week, we received a better-than-expected CPI print, but the DXY continued to move higher due to global weakness and a hawkish Fed. We discussed the risks appearing in the metrics we use to gauge sentiment and flows. The overall lack of follow-through in the crypto market was evident. Volumes, net ETP flows, the Coinbase discount, stablecoin market cap trend, and search interest for key...
We wrote on Thursday about how the reaction to recent macro data has been quite underwhelming. Crypto broadly rallied in response to a cool CPI number, but indicators such as a muted Coinbase premium and low exchange volumes suggest animal spirits are still lacking. Muted volumes relative to market prices, and low social interest as proxied by Google search trends further evidence a lack of risk appetite in the market....
OVERALL, IT WAS A GOOD CPI/FOMC DAY As any market observer knows by now, CPI came in remarkably cool yesterday. May CPI data was soft across the board, with headline inflation at 0.0% M/M vs. 0.1% expected and core inflation at 0.2% M/M vs. 0.3% expected. The unexpected data fueled a violent rally across all risk assets as rates fell, and the futures market started to price in additional cuts,...
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