The stock market and currency market focus on the Federal Reserve, “tapering” exactly when to come?

Taper affects prices in all major markets, will the cryptocurrency market be spared? Follow the agenda below

The biggest driver behind this round of bull market in cryptocurrency market is the release of water by various central banks. Central banks are actively printing money in order to push the economy out of the epidemic haze quickly, causing a continuous influx of funds into the risky market and raising the asset prices in the risky market.

But recently the discussion of Taper-Tantrum (tapering panic) is heating up in the market. The concern is due to recent data releases in the U.S. showing a rapid economic recovery, as well as the New York Fed’s decision to exit secondary market corporate credit instruments, which has driven the U.S. dollar index sharply higher and sent several markets into shock.

The most obvious manifestation of this is that U.S. stocks have been in “stagflation” since June, with the S&P 500 receiving attention from U.S. equity institutions for repeated failed attempts to break through the all-time high set on May 7, finally hitting a new high yesterday after the U.S. CPI released a 13-year high yesterday. But previous shocks were not uncommon, as Ryan Detrick, chief market strategist at LPL Financial, pointed out, after the S&P 500 had closed within 1% of its all-time high for nine consecutive days without breaking through. Bespoke statistics point out that it is rare for the S&P 500 to be less than 0.25% off its all-time high for multiple days in a row at its intraday high.

A-share capital supply also trended down sharply, with a net outflow of 393 million yuan last week, compared with a net inflow of 58.571 billion yuan previously, according to Guokai Securities.

The precious metals market fell back to a high level and a shaky situation. CITIC Capital reported that due to the signal disturbance of Taper, the US dollar has signs of bottoming out, expecting that the probability of pullback in precious metals is rising, and believes that you can buy gold put options. In this week’s research report, Guangzhou Futures expects the Fed to remain on hold at the mid-June interest rate meeting, but as the U.S. economy opens up officials within the Fed may start discussing the timing of tapering bond purchases more after July, gold and silver prices will continue to come under pressure.

The cryptocurrency market has not been spared either. CNBC anchor Carl Quintanilla tweeted that according to JPMorgan Chase data

The negative premium on bitcoin futures reflects weak demand for bitcoin from institutional investors, revealing that institutional investors tend to use CME futures contracts to gain exposure to bitcoin.

The stock market and currency market focus on the Federal Reserve, "tapering" exactly when to come?

U.S. inflation “burst” ECB dovish attitude
Although the market was previously highly concerned about the trend of U.S. inflation data in May, the strong inflation data did not trigger sharp market volatility. Instead, the relative stability of investors’ expectations about the Fed’s policy direction pushed stocks to a significantly higher open and pushed

Yesterday evening, the U.S. released inflation data: the U.S. consumer price index rose 0.6% in May from a year earlier, higher than market expectations of 0.4%; the consumer price index rose 5% in May from a year earlier, the highest value since August 2008.

The three major U.S. stock indexes continued to sing high on the bright inflation data. As of the close, the Dow Jones, S&P 500 and Nasdaq Composite Index rose 0.53%, 0.47% and 0.78% to close at 34,466.24, 4,239.18 and 14,020.33, respectively, according to InWay Financial data.

The data raised market concerns, why is not reflected in the performance of the market, but the market is “cheerful”? There is a view that this is related to the dovish attitude of the European Central Bank (ECB), the market may think that the same phenomenon will also happen to the Federal Reserve.

On the 10th, at the end of the regular monetary policy meeting, the ECB decided to maintain the current ultra-loose monetary policy. In a statement said that the ECB will keep the key interest rate at – 0.5% and continue to buy eurozone bonds until at least March 2022 according to the 1.85 trillion euro emergency bond purchase program (equivalent to $2.2 trillion).

Another analysis is that it is related to the composition of the CPI. the CPI in May is due to the surge in used car prices (caused by the shortage of new car chips), followed by the rising cost of raw materials for commodities to drive.

Consequences: U.S. stocks plunge, end of commodities bull market
U.S. CPI data released on the same day, the Federal Reserve’s weekly position data showed that the size of its balance sheet exceeded $ 8 trillion for the first time.

The fact that the market did not show the concern in the price of the asset does not mean that this concern was removed. A day before the data was released, capital management giant Morgan Creek Chief Executive Officer (CEO) Mark Yusko (Mark Yusko) warned that U.S. stocks could plunge more than 60% to return to reasonable valuation levels, with small-cap overvaluation particularly severe.

Yusko believes the reason behind this is the Federal Reserve’s monetary stimulus measures, and with inflation soaring, the proportion of company insiders selling stocks is at an all-time high, the VIX panic index may have bottomed out, there will be a meaningful spike, etc. “Company insiders know the company better than investors, insiders don’t sell at the bottom, and insider trading is at an all-time high. There’s a reason for that.”

Jeremy Grantham, co-founder of asset manager GMO, also recently declared that several highly speculative market sectors have peaked and a crash is imminent (covering a wide range of asset classes including bonds, among others).

Li Xunlei, chief economist at China Tai Securities, recently said that the commodity rally is entering its end and a price downswing is expected by the end of the year, and that the current round of commodity bull market does not have a super cycle and is a restocking phenomenon due to an epidemic that has caused supply to fail to keep up.

Tan Huaqing, a senior researcher at Harvest Wealth, wrote that if the Fed implements Taper, it will generally lead to a rebound in U.S. bond yields and a stronger U.S. dollar, thus attracting capital from outside the U.S. mainland back to the U.S. In addition, there will be significant adjustment pressure on the stock market, but in the early stages of adjustment it will still be dominated by shocks to the upside.

Will Taper come early?
When the current market discusses the current round of Fed Taper, it always compares it with the 2013 Taper. The complete QE exit process goes through debt cutting, rate hikes and tapering, and the current market is concerned first with when the debt cutting will come. When the 2013 Taper signal was issued, in addition to the U.S. bond surge, precious metals fell more than the bulk, and emerging market stocks sank.

Bloomberg reports, saying that based on memories of the 2013 Fed Taper, some investors are turning to emerging market assets that are less affected by the potential spike in U.S. bond yields. During the tapering scare of 2013, the 120-day correlation between MSCI Inc.’s Emerging Markets Equity Index and Bloomberg Barclays’ Treasury indicator was less than 0.2. The equity index showed little linkage to U.S. yields during the peak of this year’s global bond sell-off. By comparison, the correlation with the Bloomberg Dollar Spot Index is about negative 0.6 and the correlation with the S&P 500 is about 0.7.

Institutions that do so, such as William Blair Investment Management and Fidelity International, are increasing their holdings of high-yield or frontier bonds that are less sensitive to U.S. interest rates. Meanwhile, Bank of America is advising investors to buy emerging market euro-denominated bonds, expecting euro yields to remain stable even though the Federal Reserve may announce plans to scale back its bond-buying activities in September.

CNBC reports that the Fed is in the early stages of preparing for Taper, with at least five Fed officials now openly discussing the Fed’s cuts in asset purchases publicly. But the process could be more modest, as bond yields spiked sharply in 2013 after Fed Chairman Ben Bernanke hinted that asset purchases could end in 2013.

From the current forecasts of several institutions in the market, the taper signal and start time will be issued or started in the third quarter of this year – the first quarter of next year, which is earlier than the time previously considered by the market.

The current market focus on the potential Taper schedule is as follows.

June-July: The Fed started discussing the topic of QE tapering, which may unfold as early as next week’s Fed meeting. 2:00 am on June 17 (next Thursday), the Fed will announce its latest interest rate resolution, and the market is watching to see if the Fed mentions Taper.

September-November: whether the Fed announces a decision related to QE tapering.

December – January next year: whether the Fed formally starts tapering QE.

CITIC Futures Research Department’s financial futures team reported that there is a new logic to the current dollar cycle, which is not the same as 2013. The essence of the current dollar cycle is the long process of the U.S. using a low interest rate environment + active fiscal policy to repair its balance sheet and fix the central bank’s function, so it is predicted that the Fed’s tapering time is still distant and real interest rates or lower than expected for a long time, and the focus should be on the impact brought about by the debt tapering landing, rather than It should focus on the impact of taper, not just the Taper itself. The team expects the announcement of the debt reduction plan to be unavoidable in or before the third quarter of this year, and this forecast is at least one quarter ahead of the expected time of the Fed’s debt reduction compared to the previous market.

But the market is also likely to digest the news in advance. 2020 December, the Fed’s interest rate meeting minutes mentioned Taper, resulting in a sharp rise in U.S. bond yields, a plunge in gold and a plunge in core assets in A-shares in the first quarter of this year.

So why should cryptocurrency investors be concerned about Taper?

According to historical data, bitcoin prices have a high correlation with the S&P 500, and in terms of the price elasticity of the asset, bitcoin is a high-risk asset, and the current round of bitcoin bull market has the divine help of the Federal Reserve’s water release. There are currently some gamblers in the market who are betting on a bitcoin crash, with data from U.S. bookmaker showing that the odds of bitcoin falling to $10,000 this year have now improved to 8/11, with an implied probability of 57.9%.

The past data may also be a bit enlightening in that while Bitcoin was still a niche market in 2013, it did fall all the way to the end of 2013, and the Fed started tapering in December 2013 – the two are not necessarily causal, but demonstrate a wonderful correlation that is worth noting.

Posted by:CoinYuppie,Reprinted with attribution to:
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