Digital Asset Market: After a recent rally, Bitcoin dropped below $62,000 due to profit-taking. The options-market activity suggests a generally bullish sentiment but not a significant move in the short term. Extraordinary Call Selling at a $100,000 strike indicates a general bullish sentiment with a cap at $100,000. This is happening despite skewed volatility for puts over calls until October.
In other news, Celsius has repaid about $2.53 billion to 251,000 eligible creditors, which is approximately 84% of the $3 billion worth of assets owed. This is a positive development for the crypto industry, as it coincides with the ongoing bankruptcy proceedings of the Mt. Gox exchange. However, not all creditors are actively claiming their funds, mainly due to the effort required to claim the small amount they are owed vs the hassle of putting in the claim. The bankruptcy administrator will continue to retry distributing to these creditors, and PayPal claim codes remain redeemable. So far, they have attempted more than 2.7 million distributions for about 372,000 currently eligible creditors.
Macro Economics: China has imposed export restrictions on key semiconductor materials, gallium and germanium, leading to concerns about a global chip shortage. These materials are critical for various industries, including chips, communications, and military equipment. China is the top producer of gallium and accounts for 60% of germanium production. These restrictions, announced in July 2022 and enforced from August 2023, have caused prices to surge and exports to drop. It is speculated that these restrictions are in response to similar export curbs by the US on advanced semiconductor chips to Chinese companies like Huawei. This could lead to shortages and price hikes in other industries that rely on these materials. The export restrictions can be considered a Chinese reaction to recent tariffs on Chinese products, especially EVs, by the Western Economies and Chinese fears of restrictions on high-end microchips.In other news, Consumer confidence rose in August, surpassing expectations, according to the latest Conference Board index. However, consumers' assessment of the labor market continued to weaken, reflecting recent economic data showing softening in the job market. While consumers were more positive about business conditions overall, they were also more concerned about the labor market and future income. The report comes as the US unemployment rate has risen to its highest level since 2020, and job growth has slowed.
Equities: On Tuesday, US stocks fell after the Dow reached a record high the previous day. Investors are cautious ahead of Nvidia's earnings report, which could potentially impact the market. The Fed's preferred inflation gauge will also be released this week, which could affect interest rate cut expectations. Apple is replacing its CFO, and the Paramount takeover is nearing completion.Nvidia, a chipmaker and leader in the artificial intelligence market, has seen its stock value fluctuate in recent months despite overall growth and success in the industry. With its upcoming earnings report, analysts and investors are closely watching for signs of slowing demand or spending from significant clients. The data center business has heavily driven quarterly revenue, with triple-digit growth in the past three quarters. While future growth is expected to slow, recent comments from top customers have instilled optimism in the market. Concerns remain about the long-term returns on investment for these expensive devices. Nvidia's CFO may provide more statistics in the upcoming earnings call to reassure investors. Today, Nvidia is the world’s second-largest company, with a market cap of $3.12 Trillion.
The Fed and US Treasury: Last week, the Federal Reserve Chair Jerome Powell laid out the path for interest rate cuts ahead but declined to specify the exact timing. Powell claimed that the labor market has normalized, with inflation declining significantly to the Fed's target of 2%. He also acknowledged that the mission of focusing on inflation has been successful. The markets responded positively to the speech, pricing in a September rate cut as imminent. Powell also discussed the factors contributing to the inflation surge and the Fed's response, noting that the economy has sustained without a recession.After the US cut interest rates, Chinese companies may consider selling their $1 trillion pile of dollar-denominated assets. This could lead to a strengthening of the Chinese yuan by up to 10%. Economists believe that the currency is the most significant risk not adequately priced into the markets, and the yuan could play an important role. The theory is that Chinese firms have accumulated more than $2 trillion in offshore investments since the pandemic, and a rate cut by the US Federal Reserve could prompt them to bring about $1 trillion back to China. This could result in a rally in the Chinese currency, mainly if the central bank allows it to appreciate. While there are concerns about a possible collapse of the yuan-funded carry trade, the central bank has measures to maintain currency stability. Some analysts estimate that Chinese companies' foreign currency holdings are lower than the $1 trillion mentioned. However, the pressure for the yuan to rally will still be present.
Geopolitical: China has tightened its control over another critical mineral, antimony, which is essential for defense uses. This highlights the vulnerability of Western nations to China's dominance over global trade and the need to diversify supply chains. However, the high costs and challenges of developing alternative sources mean that the US and its allies will likely remain dependent on Chinese minerals. This issue has become a bipartisan priority in the US, but finding solutions is complicated by a lack of infrastructure and talent, slow permitting processes, and the competitive and volatile nature of the mineral market.
View from our desk
Bitcoin (BTC) dipped below $62,000 after a recent rally, offering investors a buying opportunity. Although the options market is skewered, with Puts trading more favorably than Calls in the short term, the concentration of $100K Calls indicates strong bullish sentiment, though it may be capped. For those strategizing around the upcoming elections, the options market suggests potential exit points depending on the electoral outcomes.
All eyes are on Nvidia's earnings report tomorrow. With the potential for an earnings surprise, Nvidia, the world's largest company by market capitalization, could set new highs, driving broader market optimism. Such a result would likely fuel positive sentiment across financial markets, reinforcing the bullish outlook many investors are currently holding.
On the global stage, the United States and its European allies face diminishing leverage in trade negotiations as China continues to expand its influence in Asia and Africa. Efforts by the West to impose tariffs on items like electric vehicles and steel have met with limited success. Meanwhile, China's control over critical materials essential for high-end microchip production challenges the West's dominance in this key sector. The absence of serious political discourse on addressing these infrastructure challenges and developing related expertise underscores a growing concern as short-term solutions prove increasingly ineffective.
Happy Trading!
The 1Konto Team
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