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  • Writer's pictureVimal Gor

21st March 2023 - Weekly Market Commentary

Macro Overview

  • The regional banking crisis in the US spread to Europe with the induced takeover of Credit Suisse by UBS and the assistance of the Swiss National Bank. The FED, ECB, BOJ, BOE and other central banks also provided USD liquidity to stabilize the financial sector globally.

  • The emergency measures in the last ten days have equated to a sudden reversal of quantitative tightening and a return to quantitative easing. Real rates are now going lower and liquidity conditions are starting to resemble 2021.

  • The narrative that many believed over the last 6 months was the steep interest rate hikes to combat inflation did not break anything in the economy. However, it is becoming apparent the rapid rate hikes created an inverted yield curve and an unexpected duration risk for banks who seemingly were more focused on credit risk.

  • The deposit flight to both larger “safer” banks and to higher yielding short term treasuries will continue to create unstable depositor base problems for these banks. Increased funding and eventual regulatory costs will also challenge profitability going forward. The expectation of much tighter lending conditions by these banks has helped change the consensus forecast back to recession outcomes.

  • Averting a larger credit crisis is a key risk for markets and regulators as the aftermath from the banking crisis still unfolds. A survey of analysts on Bloomberg still predicts the FED will hike rates 25bps this week but the rates curve is pricing a less than 50% probability of a hike. We expect the FED to pause this week as financial instability concerns outweigh previous inflation data.

  • The sharp move lower in yields across the rates surface has seen the most realised volatility in UST securities since the GFC. The below chart from Bloomberg shows the move lower in yields since the beginning of March.

  • The MSCI world equity index has only seen a modest 1.25% decline in March with large mega-cap tech companies rallying and offsetting the losses in the banking and broader financial sectors. The S&P regional bank index is down 30% month to date while the FAANG index is up 7%.

Digital Market

  • Bitcoin continues to attract buyers as the ongoing global banking crisis results in a shift from QT to a new covert QE regime, currently trading near $28k, up over 20% March MTD.

  • As highlighted by Trovio Investment Analyst Thomas Hall overnight, “Despite returning ~66% YTD, the percentage of Bitcoins supply last active 2+ years ago continues to climb as the burgeoning assets value proposition becomes clearer than ever.

  • We believe the flight of new capital to Bitcoin as a safe haven asset outside of the faltering financial system, coupled with a rapidly tightening supply, will provide a favourable environment for investors leading into the 2024 halving.

  • Outside of Bitcoin, Ethereum Layer 2 scaling solution Arbitrum has announced its long awaited token airdrop. The token will grant holders voting power in various governance decisions made for the network. To be eligible for the airdrop, users were required to interact with a number of smart contracts on the Arbitrum L2 including bridges and liquidity pools. The ARB token will be distributed to eligible network users on the 23rd.

Key Digital Asset Headlines

  • Binance to lose its British pound on- and off-ramp provider in 9 weeks (Cointelegraph)

  • Coinbase Officially Suspends Binance USD Stablecoin Trading (CoinDesk)

  • Ethereum’s Shapella Upgrade Passes Final Testnet Deployment (The Defiant)

  • Fidelity Crypto quietly went live, giving millions of retail customers access to bitcoin, ether (The Block)

  • Hong Kong harbors crypto hub ambitions despite China’s crackdown (CNBC)

  • Florida Gov. Ron DeSantis Proposes Law to Ban CBDCs (CoinDesk)

  • Microsoft Is Testing an Ethereum Wallet in Its Edge Web Browser ( Click here to view our disclaimer:

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