Bitcoin, Bullion, and 'Biggest Shorts' Surge Despite 'Bad Data' Week

Week of Unexpected Inflation and Growth Data

Contrary to expectations, the week saw surprising inflation macro data and disappointing growth macro data. However, this did not prevent stocks from rising for the fifth consecutive week, with Small Caps experiencing a significant surge. Stocks that were heavily shorted also saw a significant squeeze.

Volatility in Chinese Markets

Chinese stocks experienced extreme volatility, reminiscent of the 2015 meltdown, leading to nearly $500 billion in combined losses in mainland and Hong Kong markets. Investors are demanding more stimulus than the Beijing authorities have already pledged. The CSI 300 Index's weekly trading range saw a significant surge, the first since July 2015. The current turbulence is attributed to sluggish consumer demand that threatens even the scaled-down growth ambitions of the country.

Financial Conditions and Volatility

Interestingly, the rise in macro surprise data has coincided with financial conditions loosening to their 'easiest' since November 2021. The year has seen 45 all-time-highs, but none have occurred alongside such elevated levels of volatility. The volatility term structure is notably upward-sloping into the election period.

Treasury Yields and Rate-Cut Expectations

Treasury yields were mixed, with the short-end significantly outperforming. The yield curve steepened the most since the start of August. Rate-cut expectations rose modestly this week, with the focus on 2025 as 2024 remains priced for less than 2 full rate cuts.

Dollar, Gold, and Oil

The dollar rallied for the second straight week, testing August's highs. Despite the dollar's strength, Gold extended its rebound to end the week higher. Oil remained flat, holding on to gains with WTI back above $75.

Bitcoin's Performance

Bitcoin saw a significant surge, moving from $59,000 to $63,000, ending the week solidly in the green after testing near one-month lows. This may mark the start of Bitcoin's rip on the back of surging liquidity.

Two-Year Anniversary from Bear Market Lows

This weekend marks the two-year anniversary from the bear market lows. The S&P is up 66% from the lows in October 2021, aided by an endless supply of liquidity from global central planners. However, the last week or two has seen liquidity start to contract a little, even as stocks soared to record highs.

Upcoming Election

With the upcoming election, where Trump is now leading in all the prediction markets - but not the polls, it remains to be seen if the money-printers will get back to work or if stocks will sink.

Bottom Line

This week has been a rollercoaster in the financial markets, with unexpected inflation and growth data, volatility in Chinese markets, and surges in Bitcoin and stocks. As we approach the two-year anniversary from the bear market lows and the upcoming election, it will be interesting to see how these factors will impact the markets. What are your thoughts on these developments? Share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, every day at 6pm.