BRC’s Breakdown

US Bond Yields Hit New Highs; Bitcoin Stays Resilient

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Welcome to BRC’s Breakdown.

We’ve got a whole new look, content, and feel.

The goal in the next few minutes is – to give you a snapshot of the macroeconomic market, the aftereffects right here in India, and of course, what’s happening in the world of digital assets and artificial intelligence (AI).

But first, how did the markets fare:

[graphic that shows the following assets and a 1-week change – S&P 500, US 10 year, US 2 year, India 10 year, USD INR, Nifty 50, Gold (In INR), Bitcoin (In INR) , Ethereum (In INR)]

Here’s a preview of what we’ll cover:

Macro-view

Market view

Digital Assets

Tech and AI

Top Headlines

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Macro View

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A quick macro view of the market with information on key assets that the core readers would have exposure to.

The writing style should be simple and casual. However, this should be written from the point of view of authority to build trust in the brand.

Since we’re writing to readers who are:

unfamiliar with global markets

have low touch with the global news

We should be as explanative and simple as possible. Every complex term or phrase should be expanded in full.

For instance:

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Below is an excerpt from FT:

In short, markets need ever more central bank liquidity for financial stability and governments will need it even more for fiscal stability. In a world of excessive debt, large central bank balance sheets are a necessity. So, forget QT, quantitative easing is coming back. The pool of global liquidity — which we estimate to be about $170tn — is not going to shrink significantly any time soon.

Instead, a statement that reads easier:

Both – markets and governments need central bank liquidity. Markets need it for for financial stability, and governments for fiscal stability. Central bank liquidity by expanding their balance sheet is a necessity during such a time of excessive debt. This is why – we’ll see more quantitative easing (when a central bank buys financial assets to increase the money supply and encourage lending and investment) than the reverse of it – quantitative tightening.

The pool of global liquidity, which is – $170 trillion – currently is not going to shrink any time soon.

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Sample

Oil prices continue to rise, adding to worries about inflation. The US seems to have depleted most of its Strategic Petroleum Reserve even as Russia & Saudi Arabia continue to limit supply. Oil prices, along with housing prices, account for a big portion of US inflation. So, if oil prices stay high, US inflation will remain at high levels for a longer period of time.

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Screenshot_2023-09-29_at_10.25.48_PM.png

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US interest rates have continued to increase after last week’s Federal Reserve meeting and investors are coming to the view that rates will be high for a longer period of time (previously it was expected that rates will be cut in mid-2024). 10 year yields are now at their highest level since mid-2007. As a result, borrowing costs are increasing globally - for example the average cost of a home loan in the US is above 7%. It used to be less than 3% just 2 years ago. So, for a person taking the same size home loan now, versus 2 years ago, the monthly payment has more that doubled.

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Screenshot_2023-09-29_at_10.27.09_PM.png

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US Dollar has continued to become stronger versus most global currencies and is now at its strongest point since November last year. As a result, US imports will feel more expensive. Global investors tend to measure their returns in US Dollars and a strong US dollar means returns from non-US Dollar denominated assets (Eg. Indian bonds and equities, London real estate etc) will look even weaker.

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Screenshot_2023-09-29_at_10.28.18_PM.png

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Risks of a US government shutdown are increasing and could disrupt the economy. The US government accounting year starts on October 1st and the US Congress has still not approved funding (budget) for expenses. If the Democrats (Biden’s party) and Republicans (Trump’s party) do not agree on many issues including cuts in spending, additional funds for Ukraine and border security. By Saturday, both the House (Lok Sabha equivalent) and Senate (Rajya Sabha equivalent) need to approve some form of a temporary budget - else US government employees will not be paid from October 1st. While those in essential services like immigration etc will continue to work without pay, others like those in research, national parks etc will be asked not to report to work. The Anti-Deficiency Act, first passed in 1884, prohibits US government agencies from spending or obligating funds without an act of appropriation – or some alternative form of approval – from Congress. The last shutdown was 35 days long in 2018-2019.

Earnings season will start globally with many companies having an accounting quarter end of September 30th. Poor results could result a sharp decline in stock prices - especially of the large tech companies. Most of the US stock market returns have come from the Enormous 8, led by Nvidia. The market is expecting these stocks to deliver solid earnings and any hint of weakness in demand/delivery could result in prices dropping sharply.

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To substantiate your point, you can add:

charts

tables

tweets

quotes

news headlines

Market View

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A micro view looking at major markets in the following order:

US Equities

US Bonds long-term

US Bonds short term

US currency versus Indian currency

Indian equities

Gold (in rupees)

Here the focus will be on taking a prevailing theme from the macro view, and presenting it for each micro view.

The goal of this is to convince the reader that:

we are broadly knowledgeable

we understand the macro view and how it affects different asset classes, including crypto

we weigh macro + micro views before making crypto investments

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Sample:

US Equities are ending the September quarter on a weak footing, well off their recent highs made in early August. Despite the decline over the last few weeks, S&P 500 is up over 12% for the year. US bonds though have had a tough year (yet again - after negative returns in 2021 & 2022) with the market overall (represented by the Bloomberg US Aggregate Index), down over 1% for the year. With even bank CDs (large deposits) offering over 6% per year returns with low risk, some institutional investors like pension funds are moving away from higher risk, less liquid investments like private equity to the relative safety of fixed income instruments.

High level of US bond yields is slowly affecting other bond & currency markets globally. Higher US yields have been one factor pushing Indian 10-year government bond yields higher by 10 bps (0.1%) for the quarter. This increase in Indian bond yields occured even though JP Morgan announced that Indian bonds will be eligible for their widely followed bond index which will increase demands from foreign investors for Indian bonds. Higher demand should result in lower yields. It is important to note that year-to-date, yields have declined by 10 bp, making the Indian bond market one of the better performing markets globally.

So far in 2023, Indian stocks have underperformed US stocks even without considering the effect of the ₹. Nifty 50, made of large stocks, is up 8.5% YTD (vs 12% for S&P 500). Small caps, i.e stocks of smaller Indian companies, have had a spectacular year so far, up 28.6%. Most PMSs have a larger allocation towards smaller companies - so you should expect decent returns from those schemes.

Gold prices in India have risen 5% so far this year. So, in summary, regardless of which asset in India you invested this year, performance has been positive.

Digital Assets

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A quick snapshot of the biggest piece of mainstream crypto news of the week. Or a piece of news that closely touches the traditional investor

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Sample

Coinbase is considering buying FTX.

Yes, this wasn’t something we would’ve had on our 2022 Bingo Card. But here we are. 10 months after the curtain on the FTX fiasco fell, the world’s second largest exchange – Coinbase – wants to use FTX’s European entity to expand its footprint outside the United States

The goal for Coinbase?

Use FTX’s infrastructure to expand its derivatives business. FTX’s main offering was a crypto derivatives trading product, and Coinbase, at the time, had no presence on the derivatives side.

The biggest reason to buy FTX Europe?

One word – licenses. FTX Europe was one of the few companies which got its hands on a perpetual futures trading license. This allowed the company to offer a derivative product that tracks the price of a crypto perpetually. Similar to holding spot crypto.

The other companies with their eyes on FTX Europe?

Crypto com and Trek Labs are in the running.

If you were in Coinbase’s position, would you take up this purchase?

Tech and AI

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A quick snapshot of the biggest piece of mainstream AI news of the week.

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Sample

Pulse9 a company in South Korea creates digital humans for the country’s largest companies. These digital humans:

enroll as students

intern in companies

sport luxury hand bags

appear on live television

All of these to sell digital and physical products. This is now setting up a massive demand for digital humans for all sorts of advertisements.

How did this all start?

K-pop.

Due to the country’s massive K-pop fever, Pulse9 created a virtual idol of a K-po star, who could – sing, dance, act, and even report about things.

Top Headlines

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Here are the top headlines for the week:

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Bitcoin Is Falling. Why There’s Hope for a Rebound.⁠

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The most attractive investment isn’t Bitcoin. It’s Bonds.⁠

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Hong Kong to Disclose All Crypto License Applicants After JPEX Probe⁠

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FTX Sues FTX co-founder’s parents right before FTX co-founder’s trial⁠

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Quote Of The Week

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“Investing without research is like playing stud poker and never looking at the cards.”

- Peter Lynch

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