Macro assets experienced another quiet trading day, with prices remaining largely stable. Several Fed officials spoke with divergent views, with New York Fed's Williams (centre-dovish) echoing Powell's view that the Fed's interest rate policy will be determined by "the overall data, not just CPI or employment data", and reiterating that "we will eventually cut rates", but monetary policy is still in a "very good place" and the job market is achieving "better balance" after the release of non-farm payrolls. On the other hand, Minneapolis Fed's Kashkari (hawkish) said that interest rates may need to remain at current levels for "a long time" and "we may well need to stay on hold for a longer period than expected until we know what effects monetary policy has", and he also tried to keep the option of raising interest rates, saying "I think the threshold for (the Fed) to raise interest rates is quite high, but it is not unlimited, and there is always a limit when we say 'well, we need to do more', and that limit is inflation stubbornly remaining around 3%."
On the data front, the San Francisco Fed released commentary over the weekend that excess savings accumulated during the pandemic era have been depleted, falling from a peak of $21 trillion in August 2021 to -$72 billion in March of this year. To quote the Fed directly: "Even the depletion of excess savings is unlikely to cause American households to cut spending significantly as long as they can support their spending habits through continued employment or wage growth... and higher debt", and while this may be the case at present, this phenomenon combined with higher interest rates and a slowing job market will definitely make macro observers start to pay attention again for more signs of an economic slowdown.
There is not much to watch in terms of asset prices, but companies are taking advantage of the current low activity to launch another round of bond issuance, with as many as 14 companies announcing bond issuances on Tuesday, and more than $34 billion of new bonds priced in the past two days alone, far exceeding previous expectations. And although corporate bond spreads are at their narrowest level since 2007, demand is still quite strong, with oversubscription of more than 4.4 times.
In terms of flows, despite current high valuations, equities and fixed income have seen steady inflows this year, with no signs of stopping. In crypto, ETFs have seen outflows for three consecutive weeks, with Greyscale seeing another massive outflow of $459 million (IBIT data not yet updated), leading to a corresponding 2–3% drop in BTC prices in late New York trading.
On the positive side, according to the FTX reorganization plan, "98% of FTX creditors will receive at least 118% of the claim amount within 60 days of the plan taking effect", "other creditors will receive 100% of the claim amount, and there are billions of dollars in compensation to make up for the time value of the investment". After disposing of all assets, FTX expects to have up to $16.3 billion in cash remaining for distribution, far higher than the total amount of $11 billion owed to creditors. Ironically, this may become the largest single liquidity 'off-ramp' event in the history of cryptocurrency. Will creditors reinvest these recovered funds into cryptocurrency, or will they return to traditional assets? Interesting times.
