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SignalPlus Macro Research Report: Cryptocurrency prices expected to remain volatile with potential for upward swings.

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The volume brought by ETFs may take several quarters to materialize. Cryptocurrency prices are expected to maintain this volatile pattern, with a chance of slowly oscillating upwards.

Original Title: "SignalPlus Macro Research Report (20230629)"

Original Source: SignalPlus Chinese

The low liquidity situation in summer has begun to show, and trading activities in major markets have become lackluster, and trading volume has also begun to dry up. The economic data released on Tuesday was quite strong (the US consumer confidence index reached its highest level since 2022, durable goods orders rebounded, the house price index rose, and new home sales increased significantly by 12.2% month-on-month), and yesterday's focus turned to the G4 bank summit held in Sintra.

Powell (Fed), Lagarde (ECB), Ueda (BOJ) and Bailey (BoE) gathered yesterday for a highly anticipated group meeting. However, their collective performance was quite cautious, with each central bank leader strictly adhering to the script written in recent times, providing traders with little new information as trading material. A brief summary of their views is as follows:

Lagarde insists that the European Central Bank is currently not considering a pause in interest rate hikes, while holding a pessimistic view of the prospects for economic growth in Europe.

Bailey tried his best to express confidence in the UK economic outlook, while other markets are worried about the prospect of stagflation, making him the most hawkish member in managing interest rate expectations.

Powell reiterated that the entire Federal Reserve Board expects at least two more rate hikes before reaching the terminal rate, and that the current rate policy has a faster transmission mechanism to the economy than in history. In addition, he acknowledged that he is uncertain about the economic outlook and stated that a recession is "not the most likely scenario... [but] it is possible."

Finally, Ueda, the head of the Bank of Japan, is currently the most dovish one. This governor joked that the lag effect of the Bank of Japan may last "a quarter of a century" because they have not raised interest rates for decades; in addition, Ueda did not verbally support the weakness of the yen, believing that this is the jurisdiction of the Japanese Ministry of Finance rather than the Bank of Japan.

Overall, the four major central banks have successfully adhered to their respective scripts, and the market has hardly been affected - the mission has been accomplished once again!

With the market activity declining as we enter the end of the season and summer, and this may continue for a while, we also note that global quantitative tightening is expected to resume fully from July. The European Central Bank has tightened TLTRO operations again and taken a big step in reducing its balance sheet. Considering that the current stock index level is relatively high compared to the central bank's balance sheet level based on the model, and investors have already rebuilt a large amount of risk exposure in the case of reduced liquidity support in the summer, it is worth paying attention to whether the risk market will enter a new stage in the summer.

In addition, as previously mentioned, applying for unemployment benefits is a discreet but important leading indicator for economic momentum, and this indicator has begun to deteriorate (more unemployment), but profit expectations are going in the opposite direction. We expect that the initial jobless claims figure will have a greater impact on the market trend in the second half of this year.

In the field of cryptocurrency, after a series of exciting Tradfi-ETF news, the cryptocurrency prices have eased. Although the open interest of BTC perpetual contracts has rebounded nicely in the past two weeks, the depth of the secondary market is still challenging, and the trading liquidity situation is still about 20-30% worse than at the beginning of the year. In addition, although the spot prices have improved overall, the activity of the underlying ecosystem and the flow of stablecoins continue to decrease. The volume brought by ETFs may still take several quarters or even longer to materialize. Therefore, we expect cryptocurrency prices to maintain this up-and-down pattern, with perhaps a chance of slowly shaking up.