TheBRRR’s Thoughts

GM.

We’ve got a week full of important inflation data and Fed decisions, led by US CPI and FOMC meeting minutes set to hit the tape on Wednesday.

Bitcoin is frontrunning the week, surging from $69,000 to $72,000 over the weekend. The halving of mining rewards is about two weeks away.

On the inflation side, oil prices have climbed in recent days due to geopolitical unrest, stirring inflation worries and diminishing hopes for Federal Reserve rate cuts.

Furthering the “higher for longer” interest rate narrative was a jobs report perceived as robust last week.

The report’s data saw an incredible surge in total jobs in the economy, albeit with an overwhelming percentage of the jobs in the government sector offering part-time hours over full-time. Of the ~300,000 jobs added on net, the manufacturing sector saw no gain.

The perceived strength of the report puts a June rate cut in question with the odds of a cut coming in June falling from 57% to 51% over the last seven days.

Key Events This Week:

• US CPI for March (Wednesday): With core CPI previously surpassing expectations, this release is critical for gauging inflationary pressures and the Fed’s response. Deutsche Bank predicts a modest rise, but the focus will be on whether inflation trends persist.

• FOMC Minutes (Wednesday): Insights from the March meeting could provide clarity on the Fed’s future policy path, especially regarding rate cuts.

• ECB Policy Decision (Thursday): While no rate change is anticipated, signals about a potential June cut, following a dip in Euro Area core inflation, will be closely watched.

• Q1 Earnings Season Kickoff: Financial giants like JPMorgan and Citigroup report Friday, setting the tone for the earnings landscape.

• Global Central Bank Actions: Decisions from the Bank of Canada, Reserve Bank of New Zealand, and the Bank of Korea, along with a review from the Bank of England, could impact global market sentiments.

• Data Deluge: Apart from inflation data, markets will digest reports ranging from China’s CPI and PPI to the UK’s monthly GDP.

Fed Speakers: A cavalcade of Fed officials, including Governors Bowman, Williams, and several Reserve Bank Presidents, will offer their takes throughout the week, potentially swaying market expectations on the interest rate trajectory.

This week not only serves as a bellwether for Q2’s market direction but also offers critical insights into central bank thinking.

We expect the CPI to land softly this week and for the Fed to cut rates in June, so we’re still long risk headed into the summer. The market, and many hedge funds (as we cover below) disagree.

Place your bets.

Hedge Funds Are Shorting Equities at Record Rate

This past week, the hedge fund community showed a notable pivot towards bearish sentiment, marking a significant move in their trading strategies as highlighted in Goldman's Prime Brokerage insights.

• Hedge Funds Bet Against the Market: For four consecutive days and eight weeks in a row, hedge funds have been selling equities, with short sales outstripping long buys by approximately a 5 to 1 ratio. This aggressive short selling was most pronounced in both macro products and single stocks, indicating a broad-based skepticism rather than targeted bets against specific sectors or assets.

• Shift Away from Consumer Discretionary: Interestingly, the consumer discretionary sector, once a favorite among hedge funds, emerged as one of the worst performers and the most sold-off sectors. Hedge funds not only reduced their long positions but also initiated short positions against retail ETFs, signaling a bearish outlook on consumer spending.

• Protection and Derivatives: There was a noticeable uptick in demand for market protection, with the Goldman Sachs Panic Index reaching its highest level since the previous fall. This surge in demand for protection, particularly through derivatives like QQQ puts, indicates a growing concern about market stability and the potential for a downturn.

• Sector Specialists and Earnings Season: As the Q1 earnings season approaches, there's a keen focus on technology, particularly around AI momentum and its sustainability into the second half of the year. Meanwhile, consumer sector sentiment has shifted, with more cautious updates from companies and concerns over rising gas prices and interest rates affecting consumer spending outlook.

In summary, the past week saw a marked increase in bearish sentiment among hedge funds, with significant short selling across various sectors and a strategic shift towards assets and sectors perceived as more resilient to potential economic downturns and inflation.

Will they get blown out of their shorts in a market surge in reaction to dovish data? We think it’s more likely than the market does.

Zerohedge

Coinbase Wins Key Legal Battle, Setting Important Precedence In Securities Law

Coinbase recently marked a significant legal victory as the United States Court of Appeals for the Second Circuit sided with the platform in a lawsuit centered around the nature of crypto transactions.

Key Points:

• The lawsuit brought forth claims under various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, with the plaintiffs alleging that Coinbase facilitated the offering and selling of unregistered securities.

• Central to Coinbase's defense was the argument that secondary sales of crypto assets on its platform did not fall under the definition of securities transactions, thus disputing the application of securities laws to these activities.

• The appellate court provided a mixed verdict, overturning some of the lower court's decisions while upholding others. Specifically, it recognized potential liability under Section 12(a)(1) of the Securities Act concerning the sale of unregistered securities but dismissed claims related to the Securities Exchange Act due to a lack of evidence supporting the need for rescission under Section 29.

• Despite the mixed outcome, both sides saw the ruling as pivotal. Plaintiffs viewed it as a positive step towards holding cryptocurrency platforms accountable under securities laws, emphasizing investor protection. Meanwhile, Coinbase hailed the decision as a validation of its stance that secondary sales of crypto are not securities transactions.

Implications:

This legal development is noteworthy for several reasons. First, it underscores the ongoing debate over the classification of cryptocurrencies as securities, a matter that has significant implications for regulatory oversight and the crypto industry's operational framework. Second, the emphasis on Coinbase's user agreements highlights the complex legal nuances that can influence such cases, particularly as they evolve over time.

Coinbase's call for regulatory clarity echoes a broader industry sentiment advocating for defined guidelines that balance innovation with investor protection. The court's decision, therefore, not only has direct consequences for Coinbase but also for the regulatory landscape of digital assets at large.

Paul Grewal, Coinbase's chief legal officer, took to the X social platform to express satisfaction with the court's affirmation, stressing the importance of this ruling for the future of digital asset trading and the necessity for contracts that clearly define the nature of these transactions.

CoinTelegraph

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll