The Macro Situation
Toss and then mix. The state of the market remains confused.
The ups and downs: After an initial drop, the economy got complicated when later in the week an increase in jobless claims seemed to bolster the Fed’s plan for steady hikes. According to one report, layoffs in February were more than 5 times higher than a year ago (from 15,245 to 77,770). Then came Friday’s jobs report, which showed that 311,000 were added in February and exceeded expectations (in a bad way).
The strong jobs numbers, mixed with a slowed increase in wages, had pundits divided between a 50bps and 25bps for March. But things seemed to have slid in favor of 25bps with the precarious banking situation emerging.
If the Fed moves towards a higher rate hike, this could cause banks to sell their long-term bonds and falter. With Silvergate already in liquidation, attention turned mid-Friday to Silicon Valley Bank, which was closed temporarily by regulators and is the first FDIC insured bank to do so since the previous financial crisis.
Meanwhile, China’s PMI for February continues the upward trend, increasing 2.5% from the previous month.
Stock Watch
Stock Tickers to follow:
- Macro-Dependent: Gold (GLD), 20 Year US Bonds (TLT)
- Oil: XOM, RIG, SLB
- Signature Bank (SBNY)
After topping 105, the US dollar index slid back within the 104 range. At one point during the week, both USD and GLD were up. Now, GLD has moved into pole position, closing almost 1% up on the week.
Though oil was down by the end of this week, prices continue to be caught between fear of recession and China’s strengthening economic growth.
To make sense of where oil stands rests on whether one thinks the Fed will take this week’s banking chaos will tamper any hawkishness about rates.
The bond market has been active. The beginning of the week saw a sell-off in long-term bonds and a surge in short-term bonds. The US 2-year note rose by 18bps. If the economy steadies, this may mean long-term bonds have been oversold.
Signature Bank (SBNY) is down with 30% sold off because of its ties to Silvergate. But Signature appears to be solid financially and may therefore be undervalued.
Crypto Watch
Crypto Tickers to follow:
- Watch Out: MKR, FXS
- “Meme”/”L2” Narrative: SHIB, BONE
- “AI”/”ZK Snarks” Narrative: GPT
What hasn’t been affected by the liquidation of Silvergate Bank, which had a strong link to Crypto.com?
SVB also had an unexpected impact: some $3.3b of USDC's reserves appear to be locked there. This has caused a depeg in what was widely considered the safest stablecoin.
Since USDC partly collateralizes DAI and FRAX, watch out for MKR and FXS (the governance coins for those, respectively).
SHIB is the world’s second largest meme coin after DOGE, and it may just get bigger. Shibarium is the L2 for the SHIB ecosystem on Ethereum. It will act as the host for NFTs and NFT gaming, as well as their existing DeFi protocol. Both SHIB and the repurposed BONE should benefit. For more on the details, see AOTB’s recent Quora post.
Want to get in on the AI/ZK Snark narrative with the surge created by ChatGPT? CryptoGPT launched its coin on Friday. Its main aim is to let users monetize their own AI data, relating to “fitness, dating, gaming, and education.” See this newsletter’s top story for more information.
-Todd Mei, PhD & Sebastian Purcell, PhD
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