Good morning. The latest round of macroeconomic data provides a snapshot of a robust labor market in the US, along with expanding economic activity in the service sector, and a halt in the downward trajectory of inflation readings. Today, we anticipate hearing from the ECB, with expectations for gradual rate cuts in the latter part of the year. Powell's recent speech echoed sentiments expressed in the FED minutes from the previous month, albeit with a slightly more hawkish tone. Notably, there has been a reversal in US bank regulations regarding the inclusion of Treasury exposure in their leverage ratio calculations, signaling a possible victory for bank lobbyists.
This week, the China NPC announced its growth targets for 2024, with expectations set around 5%, slightly above consensus forecasts of 4.6%. However, limited fiscal stimulus, with the deficit hovering at 3%, and a heavy reliance on monetary support are notable factors, especially as the country grapples with deflation and long-term bond yields hit new lows.
One of the most significant price movements in recent times has been observed in alternative assets such as cryptocurrencies and precious metals. Bank of America has suggested that the escalating US national debt, increasing by 1 trillion every 100 days, is prompting investors to seek refuge in assets that hedge against currency devaluation, such as gold and bitcoin. This perspective is sensible, considering the speculative nature of cryptocurrencies and the current highly financialized market environment, where other traditional safe-haven assets garner minimal interest.
Regardless, the combination of higher bank reserves, reduced FED Reserve Repurchase Agreement (RRR), declining bond volatility, and tighter cross-currency bases indicates that loose financial conditions are likely to persist. As long as liquidity continues to expand and Central Banks adhere to current policy frameworks, the market is expected to forge ahead. Valuations may seem irrelevant in the short term, and we are witnessing the resurgence of some overvalued names re-entering the IPO market, like Redditt and ARM, at seemingly inflated capitalizations. Despite some warning signs, such as Apple showing signs of regression to the mean and internal challenges within Google, the prevailing theme remains one of positive momentum, warranting a stance of maintaining long positions for now.
Alexandros Tavlaridis