The stock market continues to see a large decline, and the VIX index is responding with a fairly strong rise. Volatility is currently very high, and the unwinding is stronger than expected… Now is the time to watch the reaction of 5450.
It is difficult to pinpoint the exact timing of when the market correction will end, but I think the current decline may be reaching its conclusion for a short-term rebound. The GDP that will be announced soon may be a catalyst for market movement. If the decline continues further, there is a possibility of 5350. The market is likely to be difficult until the FOMC, and if there is a rebound, it will be after that.
Implied Correlation is also widening, showing that risks still exist… the market was not fully prepared for the risks.
The bond market is experiencing rapid steepening… I have been anticipating a rebound in the bond market in recent weeks and have suggested a slightly more bullish view of that movement supporting the stock market. Now it looks like the opposite… but there is still room to wait and see. Fears of a recession have taken hold in the market.
What is currently an issue in the market is the yen carry trade. I don’t know the exact scale because I can’t predict it, but it seems to be having an impact, and stock markets outside the U.S. are also continuing to decline significantly. The yen carry trade means borrowing yen and investing in other currencies or assets. If you think about it in relation to the current large decline in the stock market… you can understand that the yen carry trade is unwinding and asset sales are continuing. The larger the scale, the greater the negative impact on the market. In addition, Japan plans to raise interest rates next week. We will have to continue to watch this issue closely for the time being.
This week’s important macro data is GDP, which will be released soon, and PCE, which will be released tomorrow. Personally, I think the PCE will not be very important because I think the disinflation trend will continue. This week, I expect GDP data, which is related to growth, to be more important. My base case is slow but continuous growth. I still don’t expect a recession.
The crypto market showed a strong rebound for two weeks due to the influence of Trump, but it seems to be greatly influenced by the macro market at the moment. BTC is holding up better than expected, but it seems difficult to renew the all-time high in the short term unless there is a special issue. Hash Ribbon is sending a buy signal, but it seems likely to show weakness in the short term unless it recovers the yellow box, and it does not seem to be at a level where active trading is possible.
The market seems to wait for the issue of potential selling pressure related to Mt. Gox to completely disappear. It will be very important for BTC to maintain the $61,000~$63,000 range to continue its bullish trend. Otherwise, the possibility of a price below $50,000 will not be 0%. (I maintain my bullish view on Q4)
ETH has been down more than other assets since the ETF launch. The ETF launch was better than expected with higher volume than expected, but… the chart looks like garbage. There is no special news compared to BTC, and as a higher beta asset, there may be more risk in the current situation.
If the current macro atmosphere continues, the market may be difficult until August…
IV has a slight decline after the ETH ETF news. The BTC Vol term structure shows that the August 2 expiry product is the highest due to the impact of Trump’s speech. There was also bidding for November options due to the impact of the US presidential election. I think the IV of the short expiry options is high. If there is no special announcement in Trump’s speech, the market’s expectations are likely to disappear quickly. Short expiry options holders need a “special announcement” from Trump.
The skews of BTC and ETH show quite different patterns. BTC is weaker than a few days ago but still bullish overall. ETH shows bearish positioning in contrast to BTC… put skew is rising.
BTC appears to have reduced exposure to August calls, buying the Dec 65k-100k call spread on today’s down move. There was no large positioning in ETH, but there was a purchase of put options for products expiring in July-August. Put options show the highest percentage of trades.
NFA DYOR
<Source : TradingView, Cboe, Ambardata, Deribit, Velo, Greekslive, Lisa Abramowicz>
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