Hello there,

A terrific Thursday to you as stocks continue to waver against a slew of conflicting data from China and the U.S.

In brief (TL:DR)

• U.S. stocks closed higher before the July Forth long weekend with the Dow Jones Industrial Average (+1.05%), S&P 500 (+1.06%) and the Nasdaq Composite (+0.90%) all higher on signs of a looming recession prompting bets that the U.S. Federal Reserve may be forced to dial back rate hikes.

• Asian stocks were mostly higher on Monday, charting their own course with U.S. markets closed and with some signs of profit-taking in Hong Kong after a relief rebound there on more favorable policy out of China.

• Benchmark U.S. 10-year Treasury fell further to 2.894% (yields fall when bond prices rise) below the psychologically-important 3% level on heightened recession fears.

• The dollar fluctuated in Asian trading, with little guidance from Wall Street.

• Oil was flat with August 2022 contracts for WTI Crude Oil (Nymex) (+0.05%) at US$108.48 as inflation and recession data creating conflicting signals,

• Gold gained with August 2022 contracts for Gold (Comex) (+0.43%) at US$1,809.30 inching higher.

• Bitcoin (+0.20%) was flat at US$19,135, and was weaker out of the weekend as the benchmark cryptocurrency appears poised to continue slipping against deleveraging within the sector and against a backdrop of macro headwinds.

In today's issue...

1. Hong Kong's IPO Scene Shows First Signs of Recovery

2. U.S. Treasury Investors Can be Assured of More Volatility Ahead

3. FTX Could Pick up Crypto Lender BlockFi at Pennies on the Dollar

Market Overview

On this day, investors declare their independence from their money as markets continue to be whipsawed amidst a slew of conflicting data that suggests the global economy may already be in stagflation.

With inflation running rampant across Europe, there are rumblings that the European Central Bank's previously accommodative stance could soon see rate hikes, which have the potential to bring the region's nascent recovery to a grinding halt.

Global stocks and bonds are in the grip of the worst selloff in at least 30 years, as there are growing signs that the U.S. is hurtling towards a recession, taking the rest of the global economy with it.

Asian markets were a mixed bag on Monday with Tokyo's Nikkei 225 (+0.84%) and Sydney’s ASX 200 (+1.11%) higher, while Seoul's Kospi Index (-0.22%) and Hong Kong's Hang Seng Index (-0.15%) were lower in the morning trading session.

1. Hong Kong's IPO Scene Shows First Signs of Recovery

• Hong Kong's stock exchange saw a total of US$2.6 billion raised in the firs six months of this year, lifting otherwise moribund sentiment in mainland markets.

• Durability of the rebound is somewhat questionable given the state of the global economy but investors can remain confident that Beijing appears determined to revive China's financial fortunes.

After a dry first six months, there are some green shoots of recovery for initial public offerings (IPOs) in Hong Kong as several sizeable Chinese companies line list themselves on one of Asia’s most dynamic bourses.

Battery materials producer Tianqi Lithium, recently opened its books and is on track to be the first billion-dollar deal this year while China Tourism Group Duty Free looks to reinstate its offering for an estimated US$2 billion.

After years of lackluster interest in IPOs, many mid to large-sized deals are underway, suggesting that Hong Kong’s market may be embattled but not dead.

In the first half of this year alone, US$2.6 billion was raised, helping to lift sentiment amidst a slew of policy measures by Beijing to ease the impact of zero-Covid policies hammering the Chinese economy.

The uptick in Chinese IPOs, especially given Beijing’s increasingly divergent monetary policy from other major central banks could potentially help buoy sentiment as the global market starts sliding into a slump.

The rise in listings suggests an improving economic climate in terms of valuations which may have been helped by the easing of pandemic regulations coupled with Beijing scaling down its crackdown on many lucrative industries.

Although there remains a lack of regulatory certainty on Chinese listings in Hong Kong, Chinese President Xi Jinping’s recent visit to the city and his first trip out of the mainland since the pandemic are a sign that Beijing is firmly in control of the city.

Against this backdrop, Beijing will likely ensure that whatever is headed to a listing ought to do well, especially given the drop off in retail confidence on Chinese markets.

China’s benchmark CSI 300 is now in bull territory, and the only major stock market globally to be in such an envious position, but global investors are still wary if the rebound is nothing more than a bull in a China shop.

2. U.S. Treasury Investors Can be Assured of More Volatility Ahead

• Despite signs everywhere that the U.S. economy may already be in a recession, it's as yet unclear which direction U.S. Treasury yields will go and Treasury Protected Inflation Securities or TIPS suggest that the long-term outlook for inflation is close to the Fed's target.

• Too much uncertainty amidst both inflation and a recession means that both investors and the U.S. Federal Reserve are struggling to find a more consistent path for yields to trend.

The first half of 2022 saw treasury holders badly beaten as they wagered that a declining economy would offer some form of respite, with a more accommodative central bank.

Yet expectations on where US policy rates could end up have seen constant volatility in yields.

JPMorgan Chase strategists suggest the second half of 2022 “shouldn’t be as ugly as the front half” but cautions that the next six months will not be as smooth sailing as some might expect.

And that’s because even the U.S. Federal Reserve isn’t entirely sure what to make of the current circumstances.

With economic data suggesting that a recession, if not a slowdown, is already under way, and inflation appearing stubbornly persistent, there is plenty of data for both bond bulls and bears to use as justification for their bid and asks and that will continue to fuel yield volatility.

The volatility and evidence of both recession and inflation is making things particularly challenging for Treasury market investors, who are running out of strategies to cope with such unprecedented circumstances, with low Treasury market liquidity exacerbating volatility.

This setback of inflation and recession risk has rippled to not only treasury-market traders, but to retail investors and businesses alike.

Market expectations of consumer-price gains have withered as breakeven rates on Treasury inflation protected securities priced an average annual rate of about 2.36%, well below the current rate of inflation of 8.6%.

The only certainty for Treasury traders is volatility, directional plays are dangerous as the market remains exceedingly uncertain and inflation will need to be convincingly lower for the Fed to take its foot off rate hikes.

3. FTX Could Pick up Crypto Lender BlockFi at Pennies on the Dollar

• Cryptocurrency exchange FTX said to be close to a deal with embattled lender BlockFi that values the firm at US$680 million, well off its last investment round of US$3 billion.

• More consolidation in the cryptocurrency sector can be expected in the coming weeks as deleveraging sweeps across the industry in the aftermath of the collapse of hedge fund Three Arrows Capital and the algorithmic stablecoin TerraUSD and its sister token Luna.

Over the past several weeks, high-profile Singapore cryptocurrency hedge fund Three Arrows Capita (“3AC”) has failed to meet numerous margin calls from crypto lenders.

In the ensuing unwind, more light is being shed on the other companies in the cryptocurrency space which have exposure to 3AC, and crypto lending giant BlockFi, has been among those hardest hit by a liquidity crunch.

BlockFi CEO Zac Prince confirmed on Twitter that his firm has a "large client that failed to meet its obligations" on an "overcollaterized" loan.

Cryptocurrency exchange FTX is now eyeing a US$25 million acquisition of BlockFi, an enormous discount from BlockFi's last US$3 billion valuation round in March 2021.

It’s been said that BlockFi and FTX have reached a tentative deal, with the cryptocurrency exchange FTX valuing BlockFi at US$680 million.

Prince alleges that he had rejected other solutions that could have resulted in his clients’ funds taking a cut.