SignalPlus Macro Analysis: The probability of a rate cut in September increases, but the "summer market" may continue to be sluggish

Original title: "SignalPlus Macro Research Special Edition: Now Hiring"

Original source: SignalPlus

Non-farm payrolls were slightly weaker than expected, continuing the recent trend of weakening U.S. economic momentum. The unemployment rate rose to 4.05% from a cyclical low of 3.43%. Of the approximately 200,000 new jobs created in the past month, approximately 150,000 were in the government and healthcare sectors, and employment data for the past two months was also revised down by 111,000. Wage growth slowed to 3.9% year-on-year and 3.5% month-on-month, respectively, providing more positive signals to the Fed that inflation is slowly falling back to its long-term target. Additionally, given the recent performance of cryptocurrencies, could we see a small surge in job seekers and lower wage pressures in the coming months?

With only a few meetings left before the November election, and given the Fed’s strong desire not to surprise the market, we expect this month’s FOMC meeting to take a more forceful stance, positioning the market for a 25bp rate cut in September.

TradFi assets welcomed the continued slowdown in economic data, with US Treasury yields falling 5–10bps in a bull steep move, while US stocks hit new all-time highs again, driven by tech and growth stocks that are highly sensitive to low rates. How many new all-time highs has this year?

Since June, the US stock market has been rising continuously, creating a huge difference with the performance of European stocks and even cryptocurrencies, and there is a lack of convincing catalysts in the short term. Not even France's far-right deadlock or Trump's victory seem to be able to shake this market, especially when the Fed's easing policy still has plenty of room. It is best not to fight the market trend.

As the second quarter ends, the focus will turn to corporate earnings reports. Citi analyst models show that there is a possibility of more positive surprises in earnings reports based on management guidance and strong pricing power of companies. Well, say goodbye to another short-selling catalyst.

We mentioned the strong seasonality of July before, and it has been going quite well so far. The first two weeks of July are historically the strongest period for US stocks, and July as a whole has been a remarkable month in itself. Can you share some of the heat with cryptocurrencies?

As expected, short positions in both the SPX and Nasdaq continue to hit new lows, at just 7% of float. Any chance of getting below 5% before summer is over?

More extreme, the SPX's "concentration of winners" is now above the highs of the 1930s. Don't forget that markets can correct in "price" and "time," and even if the final sell-off feels like an instant disaster, the process of tops often takes months or even quarters, and we haven't seen any significant signs of a shift in sentiment... yet.

Speaking of a sentiment shift, the fortunes of many crypto tokens have changed, with major tokens and top altcoins seeing a -20% correction in the past month and a 10% drop in the past week alone.

The German government’s publicized intent to sell and the supply unlock at Mt. Gox pushed BTC from $65K to $54K in a week, with a lack of positive catalysts coupled with long-term long positions unable to offset the massive selling pressure, leading to painful and dramatic position stops across the market.

There were massive BTC futures long liquidations across exchanges, and even spot ETFs saw massive outflows due to profit and loss protection.

In addition, it was reported that most of the price losses occurred in the Asian time zone, and European and US investors may have done some bottom fishing, while Asian investors suffered the brunt of capital losses.

Meanwhile, the implied volatility of BTC and ETH has barely changed, and traders seem to be focused on position liquidation rather than buying downside protection or going short outright. This wave of movement seems to be completely led by spot, and traders were caught off guard and focused on minimizing risk rather than entering new positions.

After a very disappointing altcoin season and post-halving price action, the entire crypto space has seen quite severe losses, with little incentive to chase price rallies in the native ecosystem alone, and even though inflows following the approval of the ETH ETF may provide a short-term bottom for the market, position distribution takes time, and crypto prices may be "stagnant" for most of the summer. A significantly dovish FOMC meeting on July 31 could provide some overall support, but a stock market sell-off (if it happens) remains an external but real bearish risk to overall sentiment.

We continue to believe that this crypto cycle (and the ones that follow) will be very different to what native users are used to, the players have changed, the wallets are different, and the rules of the game have changed with the entry of TradFi.

Stay safe folks, it could be a long summer.

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