Over the next few days, I shall be attending Token2049, the Fintech Talents Festival and Digital Asset Week, all happening in London. Given the current environment, it should be an interesting time to be part of the conversation. Please bear with us if TMH is a touch shorter than normal, but I shall aim to provide as comprehensive coverage as possible. Thanks as ever for your continued support.
All prices are at 7.40 GMT, with changes reflecting movement from midnight GMT
Oil - Brent and Crude January futures flat in the Asian session, currently trading at 95.30 and 88, respectively. Overnight oil took some respite after a steep fall yesterday as China worries took over the front of traders’ minds and, in particular, what the effect of a slowdown on demand for oil would have on the sector. Today’s inflation data out of China did little to dampen those fears.
EQ - Risk off in Asia with the major indices lower the Hang Seng now off close to two percent driven by the poor inflation data suggesting a slowing Chinese economy. We currently sit at 16,311. Nikkei futures fairing better, currently trading flat at 27,680.
The Nasdaq and S&P flat overnight in Asia, trading now at 3833 and 11,115, respectively as they await further clarity out of the US mid-terms and whether they retrace some of yesterday’s euphoria fuelled by expectations of big gains for the Republicans.
Gold - Gold Dec had lift off yesterday, with it currently trading at 1714 overnight in Asia. The range we had happily sat in for a number of days is now gone as gold seems to have regained its safe haven status with everyone running for cover in the crypto sector and anxiety surrounding the closer-than-expected US mid-term elections. On top of that, a technical break of 1680 saw acceleration in the move. Next resistance is in the “noisy” zone at 1720/25 where we spent a lot of time previously trying to break in both directions. Support back at 1680.
FI - US yields once again subdued trading overnight in Asia with the US2y currently at 4.66% whilst the 10y at 4.13%.
European yields continuing to trade softer on the open with the German 10y yields trading currently at 2.25% and similarly Italian 10y yields at 4.355%.
UK gilts followed the overall lower yield pattern with the 10y yield closing at 3.55%.
FX - The USD stabilised in Asia with the USD Index currently 109.73 after its sell off yesterday as risk continued to rally on expected big gains for the Republicans. The cloudier picture leaves the majors marking time with USDJPY, EUR and GBP currently trading at 145.78, 1.0064 and 1.1531, respectively.
Others - Bitcoin and Ethereum unsurprisingly suffering in the wake of the CZ/SBF fallout. Both lower currently at 18,281 and 1280, respectively.
US Mid-term Elections.
To early to call in the Senate but it looks like the House will go to the Republicans although it seems the final margin will be closer than had been projected with latest estimates at 219 vs 216. The Senate, however, remains in the balance.
Some other quick headlines:
Democrats win Pennsylvania, one of the key swing states
The Senate now goes down to Georgia, Nevada and Arizona, and they all have yet to call
Ron DeSantis, who remains Trump’s main adversary for the Republican ticket in 2024, was re-elected as the governor of Florida, and in some polls, there has been a 10% swing in favour of him versus Trump for the Republican Presidential candidate.
SBF/CZ/Alameda
Well, that was quick with one tweet, it was all over. Binance agreed to help FTX and signed a non-binding LOI with intent to acquire FTX.com and help the liquidity crunch. In the coming days, they will conduct a full DD and go from there. SBF very graciously admitted defeat (through gritted teeth) and thanked Binance and CZ for their support and help. And then there was one.
Wow, we did feel it would go that way once the pressure was on but not nearly as quickly as that. There are lots of theories and counter theories. I have tried to post at the bottom some of the more “reliable and trusted sources” to give those that want to delve further into the murky pond. Lucas Nuzzi’s (CoinMetrics) twitter thread suggests, with some compelling evidence, that the issues for FTX/Alameda go back to q2, Dylan LeClair gives an excellent timeline of the recent events and a couple of ZeroHedge articles give more colour on the rise and fall of SBF. In addition, an article from The Block on how SBF’s demise will affect crypto regulation going forward is definitely worth a look.
Finally, it’s always good to get Imran Lakha’s forensic option market analysis and this week’s edition is published with perfect timing given recent events.
So what’s next? Well, obviously, CZ’s DD on the wreckage and let’s be frank the possibility of him buying FTX remain fairly slim surely? Who knows what is under the hood and perhaps he’ll pull a SBF and buy the “assets” at auction?
Further ripples in the crypto sector would appear to be inevitable. If Lucas Nuzzi’s tweet is to be believed then FTX’s troubles probably started around the time of the Terra/Luna debacle earlier in the year and have taken 6 months to surface thanks to SBF’s deep pockets. Alameda has large tentacles in the crypto sector and surely some contagion is inevitable. Then there is the long list of investors who helped secure a funding round back in January that valued FTX at $32bn; Tiger Global (they’re having fun this year!), SoftBank (are you surprised?) Ontario Teacher’s Pension Fund, Paradigm and Sequoia, to name but a few.
FTX had recently stepped in to help Skybridge, recently bailed out BlockFi, bought Voyager’s assets and led investment rounds in layer 1 hopefuls Aptos and Sui.
There will be ripples.
Finally, the political debate will rage on, with spats like these hardly helping the sector’s credibility. SBF was a strong voice, whether you liked it or not, and his push for the priority bill in Congress looks now dead in the water. The bill was controversial as it would have given the CFTC new regulatory authority over crypto exchanges and spot markets to the detriment of DeFi hence its many detractors. That appears dead now, as does one of crypto’s loudest and most prominent voices.
One final thought on the actual mechanics of what went on here and once again it’s a liquidity crunch that causes the downfall. We have seen this so many times both in TradFi and in crypto with the Terra/Luna debacle a prime example. This occurred a mere 6 months ago but yet from CoinDesk’s research Alameda’s assets were in the region of $14.6bn versus liabilities of $8bn but the majority of that gap was made up of extremely illiquid alt coins. You’d think people would learn, although if you look at the top seats of Alameda, that maybe tells a story in itself.
Other news
The latest UK fiscal package news with just over one week to go! Stealth taxes are threatened on pension pot and the top rate of income tax is either proposed to be raised or the £150,000 threshold lowered.
Citibank is the latest Wall Street firm to lay off staff from their investment bank arm.
ECB chatter from de Guindos and Nigel yesterday was hawkish.
Post a great thread from Alf of The Macro Compass below, where he compares the similarities he feels that will prevail in 2023 and how they echo much of what we saw in 2001.
The Day Ahead
China inflation overnight was much lower than expected with YoY coming in at 2.1% from a previous print of 2.*% and 2.4% expected, raising the spectre of deflation.
Other than seeing US election results dribble in and the FTX updates, there is little to keep us awake today other than some central bank chat.
FXMacro Guy keeps on giving and I include his weekend tweet with some reading recommendations for the markets. I can speak first-hand that there are some great reads in there, so well worth a look.
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Wednesday
RBA Bullock speaks (09.05 GMT)
ECB Speakers
Elderson (10.00 GMT)
Fed Speakers
Williams (08.00 GMT)
Barkin (16.00 GMT)
Kashkari (01.00 GMT tomorrow)
Good luck.
PAV - Daily Chartbook #79
Noahpinion - Macroeconomics is still in its infancy
Macrodesiac - 🔔 FTX is as safe as The Bank Of England
Luke Gromen - FFTT, LLC - Updated Fed pause thoughts, Gold v. gold miners, time to buy long-dated USTs yet?
The Gryning Times - A power shift in Congress and dollar's decline.
Discover more market commentary & research from 500+ curated sources on Harkster →
FXMacro Guy Weekly Review and Daily Tweet
Substack - Outlook for Week 45/2022
Twitter - Top 10 trading books
Crypto
@LucasNuzzi - FTX might have provided a massive bailout for Alameda
Zero Hedge - Sam Bankman "Fried" Nearly All Of His $16 Billion Fortune
The Block - Bankman-Fried’s priority crypto bill ‘dead’ after FTX sells to Binance
@DylanLeClair_ - CZ chooses blood.
Zero Hedge - Crypto Crashes After Binance 'Rescues' FTX From "Significant Liquidity Crunch"
@options_insight - Crypto Roundup
Markets
@MacroAlf - 2023 in macro might look a lot like 2001
UK
Discover more market commentary & research from 500+ curated sources on Harkster.
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Very much appreciate your work. Thank you.
Liquidity, or the lack thereof, is the downfall of every market. And that's the problem, all markets have gotten used to the extraordinary liquidity provided by the central banks for the past 15 years. as it dissipates, markets will crumble. Crypto may be first, but watch collectibles and Fine art, two things that are extremely illiquid and bad at fire sales