Last week saw the continuation of what many are calling a ‘one-pillar’ market, with Nvidia almost single-handedly holding the markets up, while sticky PMI, inflation expectations, and a decidedly more hawkish Fed rhetoric raising fresh questions to the goldilocks narrative. According to Wall Street, last week was a week that saw the fewest advancing stock sectors since last October, signaling increasing narrow leadership, with Nvidia being by far the biggest contributor to this week’s gains by market cap.

Treasury curve bull flattened into the long-weekend, with 2yr yields inching towards 5% again. Rates will be focused on core PCE this Friday with expectations calling for a 2.8% YoY rise in core. Meanwhile, equities are rising on lower and lower volumes with decreasing conviction, as an comfortable cocktail of every rising valuation against a seeming economic slowdown, with a ‘pedestrian’ Fed backdrop are making it difficult to carry a strong view.

What appears to be turning more ingrained is the divergence between economic data vs inflation surprise in the past 1.5 months. US economic data surprises have been on an undeniably softer downtrend, while inflation data has been moving in the wrong direction higher. At the same time, Bloomberg’s new fancy ‘NLP’ model on Fed sentiment shows that the Fed speakers’ language is turning explicitly more hawkish, while asset markets continue to turn a blindy eye with FX/equity/rates vol and credit spreads all making interim lows. Something has to give here, and our view is that macro markets are being a bit myopic here as it’s been nigh-impossible to carry any equity shorts over the past 6 months.

Crypto markets remain buoyed by the rapid developments in ETH’s ETF approvals, with issuers wasting no time in filing their revised S-1s, while Ethereum is on track to test 4000 with the ETH/BTC ratio bouncing back to its 6 month average. BTC ETF inflows have also benefitted, recording strong cumulative inflows over the past 3 weeks. Finally, with the US election season drawing ever closer, both sides appear to have apparently decided that crypto is now going to be a platform to earn libertarian and swing votes from the younger audience, with former President Trump’s extremely aggressive with a series of pro-crypto proclaimations (accepting donations in crypto)

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