President Donald Trump reiterated his demand for the Federal Reserve (Fed) to accelerate interest rate cuts, saying the US central bank needs to keep pace with its global counterparts. “They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW” - the President tweeted. At the same time, Chicago Fed President Charles Evans noted that the Fed has eased its policy substantially since late last year, but more interest rate cuts may be needed to offset not just sluggish inflation but also growth headwinds from trade-related uncertainty. The comments come as market participants continue to flock towards safe haven assets, with the US 10y yield hitting a nearly 3y low, while the spread between the 3-month and 10-year notes is at its biggest inversion since April 2007. Interestingly, Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates, urged investors to lay bets on "both horses in the race" amid rising trade tensions between the U.S. and China. Dalio argued that investors still have a historic opportunity to buy into China as it opens up its markets to foreign investments.
Gold stabilized around the $1500 level and, as a reminder, European Central Banks have ditched a 20-year-old agreement to coordinate their gold sales. The so-called Central Bank Gold Agreement (CBGA) was originally signed in 1999 to limit gold sales and help stabilize the market for the precious metal. In a statement, the ECB said that the signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits, and none of them currently have plans to sell significant amounts of gold. The deal, originally between 15 central banks, capped the amount signatories could sell each year and over the subsequent years prices surged from less than $300 to a high of almost $2,000 in 2011 (it’s at $1,500 now). Now, of course, in spite of suggesting that there is no desire at the moment for a significant sell off, only time will tell whether this is indeed the case, but who would blame them for wanting to capitalize on price appreciation, especially in the face of slowing economic growth and deteriorating finances?
At the same time, given the market pressure on policy makers for more rate cuts and the present inability to un-invert the bond curve, calls for the adoption of Modern Monetary Theory (MMT) may ring out again. The theory states (among other things) that a government that can create its own money, such as the United States, cannot default on debt denominated in its own currency, it can also pay for goods, services, and financial assets without a need to collect money in the form of taxes or debt issuance in advance of such purchases, is limited in its money creation and purchases by inflation...all of the above is viewed as net positive by Bitcoin maximalists.
Even though the consensus among market participants is that macro themes are widely expected to dominate the flow, the chief investment strategist at the investment banking company BMO Capital Markets, said that he thinks it is premature to call Bitcoin (BTC) a safe haven from economic turmoil. The cryptocurrency market remains incredibly emotionally driven, which is no surprise given the daily swings of over $1k which come just as unexpectedly as they end. While this creates an opportunity to capture alpha, it also makes risk management that much more difficult. At the same time, ETH hedging against BTC risks turning into a play from ICO related flow to DeFi risk and as such, ETH may further decouple from BTC.
Elsewhere, the Maker Foundation Interim Risk Team has placed a Governance Poll into the voting system which presents a number of possible Dai Stability Fee options. Voters are now able to signal their support for a Stability Fee within a range of 16.5% to 24.5%. This Governance Poll is active for three days beginning on Monday, August 5 at 4 PM UTC, the results of which will inform an Executive Vote which will go live on Friday, August 9, at 4 PM UTC.
Finally, San Francisco-based crypto lender Dharma has decided to pause new deposits and loans on its platform. While declining to offer any further details, Dharma assured the public in subsequent posts that they were “hard at work” and that the “next chapter of this story is going to be exciting.”
Thank you for reading,
The BeQuant’s Analytics team