Crypto Trends, Copycat Trades, and Oil Drivers

Top things to watch this week

The Economic Calendar:

MONDAY: Michael Barr Speaks, Wholesale Inventories, Mary Daly Speaks, 3-Month Bill Auction, 6-Month Bill Auction, Investor Movement Index, Consumer Credit

TUESDAY: NFIB Small Business Optimism Index, 52-Week Bill Auction, 3-Yr Note Auction

WEDNESDAY: MBA Mortgage Applications, CPI, Atlanta Fed Business Inflation Expectations, EIA Petroleum Status Report, 4-Month Bill Auction, 10-Yr Note Auction, Beige Book

THURSDAY: Jobless Claims, PPI, EIA Natural Gas Report, 4-Week Bill Auction, 8-Week Bill Auction, 30-Yr Bond Auction, Treasury Statement, Fed Balance Sheet

FRIDAY: Import and Export Prices, Consumer Sentiment, Baker Hughes Rig Count

Key Events:

• The big economic report to watch this week is the June CPI release on Wednesday. 
• Active Fed speaker schedule – Barr, Daly, Mester, Bostic, Bullard, and Kashkari.
• The earnings reporting season kicks off for Q2 with JPM, WFC, and C on Friday. 
• Special interest in what major banks say about deposits and loan growth.
• Grain futures traders look to the WASDE report on Wednesday.
• The next FOMC meeting is July 25-26
• The consensus economist estimate is looking for m/m headline CPI to come in at +0.3%, while the year-over-year estimate is +3.1%.

QUICK WEEKLY RECAP

Traders failed to keep the bull higher, as a late-week selloff on the S&P 500 erased an early-week rally to leave the index -1.07% lower for the holiday-shortened week. June payrolls came in lighter than expected for the first time since April last year, and the VIX slipped back below 15.

The U.S. Treasury curve flattened a bit, with two-year yields higher five basis points to 4.95% and the long bond rising eighteen basis points to 4.05%.

WTI crude reached a six-week high near $73.60 a barrel, and gold rebounded to $1931 per ounce.

EARNINGS SEASON

It’s officially Q2 earnings season. 82% of S&P 500 firms will report by August 7th. Will companies be able to meet the low bar set by consensus?

Q2 2023 earnings season will begin this week, and consensus expects a 9% year-over-year decline in S&P 500 EPS driven by flat sales growth and margin compression.

S&P 500 corporations have issued 62 negative EPS pre-announcements compared to 39 positive, which the London Stock Exchange computes is an N/P ratio of 1.6 for the S&P 500 Index. This compares to a long-term average of 2.5 and a prior four-quarter average of 2.0.

ENERGY FUTURES

While the oil market is finally starting to show signs of tightening, the OPEC+ production cuts and replenishing of the Strategic Petroleum Reserve have failed to tighten balances significantly. However, crude oil futures prices are starting to lift and were +5.8% last week.

There have been two drivers recently:

1. OPEC+ has been cutting oil output since November, and after last Monday’s announcement of additional cuts, the alliance will be holding back more than 4 million barrels a day from the market. OPEC’s power to impact balances and the price of oil has been inconsistent throughout history mainly because it does not always maintain control over global spare capacity.
2. The Biden administration announced Friday it’s purchasing 6 million more barrels of crude oil for the Strategic Petroleum Reserve as it continues to refill the emergency stockpile slowly. Last year, the world’s largest economy released 180 million barrels from the reserve to address supply disruption following Russia’s military operation in Ukraine.

Interest Rate Futures

How many rate hikes are ahead?

The June FOMC minutes reaffirmed our expectation that a 25 basis point rate hike in July is very likely. Even at the June FOMC meeting, where the Fed paused rate hikes, “some” FOMC participants would have preferred to hike.

A CPI surprise this week could reset expectations on the direction of the Federal Reserve. Traders were pricing in a 93% probability that the Federal Reserve would raise rates by 25 basis points at the July 25-26 meeting.

One hawkish viewpoint taking shape by the FOMC is the possibility that monetary
policy lags are overstated, and the peak impact of tightening may have already been realized. This suggests additional hikes until an inflation print of close to 2%, a more hawkish approach than the FOMC consensus to slow (and eventually pause) rate hikes this year.

U.S. Treasury yields compared to last week:

30-Year yield 4.04% vs. 3.86%
10-Year yield 4.07% vs. 3.84%
5-Year yield 4.36% vs. 4.15%
2-Year yield 4.95% vs. 4.90%
2-10 Yield spread -0.88% vs. -1.05%

Source: CME FedWatch Tool

CRYPTO

Multiple rainstorm systems traveled across the corn belt heart over the weekend. Traders will watch how the market reacts after reducing the drought risk premium.

Bitcoin has been provided with the tailwind of two events this year with the SVB banking crisis and Blackrock Bitcoin ETF filing that have unequally benefited Bitcoin relative to the other digital assets in the market. This has translated to Bitcoin’s market capitalization dominance relative to the rest of the market, breaching 50% for the first time since early 2021.

Trends:

1. We’ve also seen volume for Bitcoin perpetual futures diverging from Ethereum perpetual futures, showing a shift in interest from traders towards Bitcoin relative to the #2 asset by market capitalization.
2. Most of Bitcoin’s performance has occurred during US trading hours, particularly following the Blackrock ETF filing.
3. Bitcoin CME futures open interest rising by over $1 billion following the ETF filing.
4. GBTC trade is being added to as the trust’s discount to NAV has dropped to its lowest level in nearly a year.

COPYCAT TRADES

Should we, as traders, look at the copycat strategy? Billionaire Mark Zuckerberg isn’t particularly shy about copying a good idea when he sees one.

From cribbing Snapchat’s stories feature to cloning TikTok in the form of Instagram Reels, the Facebook co-founder has a long and well-documented history of being a copycat. Now he’s copying the playbook from Twitter and launching a social media clone called Threads.

Asset Class Performance Summary

This performance chart tracks the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.

COPYCAT TRADES

Should we, as traders, look at the copycat strategy? Billionaire Mark Zuckerberg isn’t particularly shy about copying a good idea when he sees one.

From cribbing Snapchat’s stories feature to cloning TikTok in the form of Instagram Reels, the Facebook co-founder has a long and well-documented history of being a copycat. Now he’s copying the playbook from Twitter and launching a social media clone called Threads.

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