Burdened By What Is

Election Countdown

Trad-Fi Market Summary

The odds of Republicans taking both the House and Senate are the highest since Biden dropped out (+38%) which as I covered last week is more important to markets than just a Trump or Harris win. According to Polymarket is now just shy of 50%, up from 33% on Oct 17.

Recent market behavior indicates a cooling-off period after a robust run-up. Various indices and individual stocks are pulling back from their recent peaks, suggesting profit-taking among investors. This pullback is accompanied by a notable deterioration in market breadth, where fewer stocks are participating in the upward movements, a sign that the market's advance might be losing steam. This dynamic is often visualized through indicators like the McClellan Oscillator, which shows a shift from broad-based participation to a more concentrated move in a smaller number of stocks.

The private equity market, traditionally seen as a less liquid but potentially high-return segment, is experiencing what some might describe as congestion. High valuations here, fueled by low interest rates and a search for yield, have led to a scenario where the demand for deals outpaces supply, pushing prices up. This environment could be setting the stage for a downturn if the performance of these investments doesn't meet the high expectations set by their purchase prices, reflecting perhaps an overvaluation bubble within private equity.

Marco Economic Calendar up until the election:

Week Starting October 28, 2024:

• Monday, October 28:

  • Singapore: Export Prices YoY, Import Prices YoY, PPI YoY

  • Spain: Retail Sales MoM, YoY, Inflation Rate MoM Prel, YoY Prel, Core Inflation Rate YoY Prel, Harmonised Inflation Rate MoM Prel, YoY Prel

  • Germany: Various regional CPI reports and preliminary Inflation Rate YoY, MoM, Harmonised Inflation Rate YoY

• Tuesday, October 29:

  • UK: CBI Industrial Trades

  • US: Dallas Fed Mfg Index, 2-Year Note Auction

• Wednesday, October 30:

  • US: GDP QoQ

  • China: Manufacturing PMI

  • Japan: BOJ Interest Rate Decision

• Thursday, October 31:

  • Australia: CPI Indicator

  • EU/US: GDP Growth Rate

  • UK: Autumn Budget

  • China: Caixin Manufacturing PMI

  • US: Non-Farm Payrolls, ISM Manufacturing PMI

• Friday, November 1:

  • Indonesia: Inflation Data

Week Starting November 4, 2024:

• Monday, November 4:

  • No specific high-impact events listed, but typically, there might be minor data releases or corporate earnings.

• Tuesday, November 5:

  • Election Day in the US.

(I share no political leaning in this newsletter but yes that is Karl Marx)

Liquidity Summary (Fed liquidity guide)

U.S. domestic liquidity was positive for the second week at $10.8B

As highlighted over the last few weeks, world central banks are easing and following the Fed’s lead to cut rates (Fed opened 50bps cut) and the top 5 CBs of importance are as well and only 2 had lower than 2% core CPI when they started easing.

China’s stimulus has disappointed but the state of future stimulus remains positive as they have no choice but to keep a steady increase in volume. Last week had the biggest PBoC liquidity injection totals since the 2023 cycle. We will get another NPC standing committee meeting the week of November 4th, right in line with the US elections.

Secured Overnight Financing Rate (SOFR):

The SOFR has been reported at 4.83% as of October 24, 2024, remaining unchanged from the previous day's rate. This indicates stability in the overnight financing rate for transactions collateralized by U.S. Treasury securities.

Reverse Repo Market (RRP):

The usage of the Federal Reserve's Reverse Repurchase Agreement (RRP) program is decreasing, yet it almost hit a low of $200B this week. The debate rages on when we will see this facility drain to zero but that is unlikely until money market funds (MMFs) choose to either raise their self-set limits on counterparty exposure or establish additional sponsored repo arrangements.

Treasury General Account (TGA):

Fall QRA projections - Bill issuance.

December Total Borrowing Estimate: $543 billion

December Balance Estimate: $700 billion (Summer QRA)

March Total Borrowing Estimate: $990 billion

March Balance Estimate: $700 billion (as projected by John C)

There is a possibility the TGA debt ceiling rundown is further out in 2025 (Feb) but that would be based on the debt ceiling being resolved fast and in my experience the government agency in question does not ever predict its own future failure so I am not surprised Yellen does not have a debt ceiling disaster on her bingo card.

Bank Flows (Defunct BTFP):

Following a $6.5B withdrawal last week, money-market funds experienced a substantial influx of $40.4B this week, pushing their total assets under management to a new peak, surpassing $6.5T.

Concurrently, after significant deposit withdrawals last week—possibly linked to due tax payments—U.S. banks witnessed a robust rebound in deposits, with an $84B increase as of October 16, the most recent data point. This recovery was evident in both seasonally adjusted and unadjusted figures, with total deposits increasing by $66B unadjusted. Domestic deposits, excluding foreign contributions, also saw a significant upturn, rising by $73.7B when adjusted for seasonal factors and $60.5B without adjustment.

The surge in deposits was predominantly driven by large banks, which saw inflows of $46B unadjusted and $67.7B adjusted, while smaller banks added $14.5B unadjusted and $6 billion adjusted. Intriguingly, alongside this deposit growth, there was a significant increase in loan volumes during the same period, with large banks’ loan growth at $20.7B and small banks at $5.3B, marking the most substantial increase since April 2023.

The BTFP continues to drain (down $7.1BN this week) as the initial loans roll out of the facility and without BTFP 2.0 it is likely we get more regional bank failures.

Fed Balance Sheet (QE/QT):

Same as RRP drain the QT will likely continue until we have acknowledged bank reserve issues and money markets finding new homes for sidelined cash.

Federal Reserve & Co.

Odds are favoring 2 more 25bps rate cuts per FOMC in 2024 and I would agree despite the onslaught of Fed speakers last few weeks saying wild and conflicting nonsense. It is very clear the 50bps cut was political rather than data-driven and future cuts will be largely be driven by who sits in the oval office next 4 years.

USD VS Everyone Else

DXY has shown resilience and a bullish trend in recent movements, with some posts from X indicating it's been testing and surpassing resistance levels, with predictions for potential further increases. The index's movement reflects strong demand for the dollar amidst geopolitical tensions and market sentiments favoring a safe-haven currency like the USD.

Against CNY (Chinese Yuan): Speculation around Chinese stimulus measures and their impact on the yuan has led to a slight depreciation of the dollar against the CNY in the past week, although this hasn't significantly shifted the broader bullish trend on DXY.

Against EUR (Euro): The EUR/USD pair has experienced pressure, with the euro weakening against the dollar due to the Federal Reserve's stance and market dynamics. Discussions on X suggest expectations of further euro depreciation, potentially pushing towards 1.0760 before any recovery might be seen.

Against JPY (Japanese Yen): The USD/JPY pair is noted to be at levels close to intervention warnings from Japan, indicating a very strong dollar against the yen. Current sentiment captured from X mentions the yen weakening further, with specific levels like 153.70 being floated as possible peaks before corrections.

Bitcoin Summary

Not much has changed in the scope of Bitcoin adoption and Trad-Fi push for inclusion as Microsoft votes on adding Bitcoin to the balance sheet and the CFO agrees it is an “is an incredibly powerful concept, and I don’t think we’ve fully grasped what it could mean for society.”..

Bitcoin spot ETF inflows have been relentless over the last few weeks and have 9x weekly supply.

Got lots of FUD this week that was either untrue or markets just did not care, while Bitcoin defended lower lows and put in new higher highs (on LTF) so I will be looking for a very strong week this week as corporate buybacks lead the charge.

Bitcoin Weekly

Hugh wick on the weekly candle testing prior resistance as support. As said here a few times, we will start to see new money enter the BTC market above $72-74K and I will be looking for some big volume to come in as well. RSI is in neutral territory with miles to run if we catch a bid here. Same with OBV.

Bitcoin Daily

Zooming in on the daily it is just about the same story as the weekly and looking amazing - hard to find the bear case here… (outside election shenanigans)

Bitcoin LRC Chart

I have been pointing this char for most of 2024 waiting for the 210 consolidation to end (March to October) and we appear to be catching fire first two candles out.