Throughout this week, I have been studying and collecting diverse data to present an in-depth macro-analysis. The information that I have gathered only serves to verify what we already suspected. As for the latest developments, let’s talk about the yield curve, GOLD, bank deposits, and the FED and how they tie into each other.
Typically, in a healthy economy, the long-term yields exceed the short-term yields, as exemplified by US10Y > US02Y. Conversely, when the long-term yields fall below the short-term yields, we refer to it as an inverted yield curve, as is presently the case with US10Y < US02Y in the current market scenario.
What is occurring at the moment?
The current inverted yield curve is flattening. As evidenced by US02Y at 3.993% and US10Y at 3.413% (these values vary), the current difference stands at -0.58.
Compared to a month ago, the difference of -1.07 has decreased significantly.
This is a phenomenon that typically occurs several months prior to a recession; however, the situation is particularly alarming this time around.
As a result of the failure of various banks such as SVB, Silvergate, and Signature, there has been a substantial decrease in bank deposits. This trend is continuing and intensifying.
In March 2023, the United States experienced the most significant monthly drop in bank deposits ever recorded in history.
Consequently, banks are imposing stricter lending requirements for loans, causing a sharp decline in the Credit Impulse, which is likely to persist in the coming months.
If this trend continues, there is a high likelihood that the US economy could fall into a recession sooner than anticipated.
In addition, the drop in bank deposits has another significant impact:
The US Money Supply (M2) is plummeting at a rate not seen since the Great Depression of the 1930s. This development is a warning sign for both the economy and financial markets.
Meanwhile, $GOLD is making an attempt to surpass the $2000 resistance level.
During uncertain and difficult economic times, investors tend to purchase GOLD. Several factors could potentially act as catalysts for a new all-time high in GOLD, including a worsening banking crisis (indicating recession fears), interest rates hitting their peak (signifying recession fears), and a weakening DXY.
After the release of the US jobs data, the price of US Rates Future has bounced back by 25 basis points, signalling an anticipated increase in interest rates.
The labour market continues to exhibit resilience, with only a slight cooling off, which puts additional pressure on the FED.
Consumers are gainfully employed and experiencing rising incomes, leading to increased spending, which is fueling inflation.
The economy appears to be showing signs of strain, and in my opinion, another interest rate hike would have terrible consequences.
With CPI and FOMC Minutes scheduled for next Wednesday, it’s poised to be a significant day.
Personally, I believe that the FED is bluffing and that rate cuts are likely to occur this year as a recession appears inevitable.
How would $BTC respond in the face of a potential recession?
In contrast to GOLD, $BTC is viewed as a high-risk asset and not considered a safe haven or a stable asset. As a result, I anticipate that $BTC will track $SPX rather than $GOLD during a recession. Several factors contribute to this, including high volatility in the cryptocurrency market, mistrust following the FTX event, legal action against major crypto companies, and the imminent introduction of CBDCs.
Therefore, I believe that if we experience a recession, this will only be a “bear market rally.”