Avantis Macro Series #2: The Cross-Asset, Everything Rally

Avantis Labs
5 min readNov 11, 2023

After the blockbuster action packed last week, this week was much quieter from a data release perspective. In this week’s macro update, we look at the risk-assets rally, and the impact of geopolitics and the Fed’s tone on crude oil, stocks, and crypto (BTC, ETH and SOL). As always, please note that this is for educational purposes only, and nothing written here constitutes financial advice.

The Cross Asset Rally

Last week, the market responded positively to favorable data and messaging from the Federal Reserve. The data, overall dovish, along with Treasury refunding and Non-Farm Payroll prints, led the market to believe that the hiking cycle is over and priced out the likelihood of further rate hikes. As a result, long-term bonds saw a rally, with 10-year bonds having their best week since the SVB collapse earlier this year. Equities also performed well, with the S&P 500 touching 4400 and experiencing a ~6% increase. Small caps, represented by the Russell 2000, gained relief with a ~7.5% increase before paring gains this week. In the credit market, both investment-grade and high-yield corporate bonds rallied. The US Dollar fell significantly, experiencing its largest decline since July, due to falling US yields and diminishing chances of a rate hike. This decline in the Dollar greatly eased financial conditions.

The rally received a boost from a successful Treasury auction on Wednesday. However, the 30-year auction on Thursday experienced a 5 basis point tail, leading to risk aversion and a pullback in all assets. As a result, the DXY rallied back to 105.9.

The poor auction on Thursday was not simply due to lack of demand. A hack on ICBC’s US unit (the largest bank in the world by assets) caused significant issues in clearing large volumes of US treasury trades. Once this problem became widely known, risk appetite returned to the market on Friday.

In response to the easing financial conditions and the market’s anticipation of rate cuts in the coming months, the Fed will likely push back. Real economy indicators continue to show signs of increasing stress. Powell attempted to adopt a hawkish tone during a speech on Thursday. This, combined with the weak 30-year auction, led to a retreat in the cross-asset rally. The future of the rally depends on market sentiment and the Fed’s messaging regarding incoming data, particularly with the release of CPI next week.

Crude Down

The geopolitical risk premium associated with the Israel-Hamas war has been eliminated from the oil market. Hezbollah has expressed its intention to avoid a full-scale war with Israel and instead focus on diverting IDF resources. This has reduced the likelihood of a broader conflict and had a bearish effect on crude oil prices (since increased Hezbollah escalation would raise the chances of a direct conflict with Iran). Additionally, the slowdown in China’s economic growth, coupled with weak domestic demand, has further impacted oil prices. As the largest crude importer, China’s reduced demand has had a significant impact. Despite Saudi Arabia’s efforts to stabilize prices through supply cuts, they have not been as successful due to ample supply from the US, as well as ongoing crude deliveries from Russia, Iran, and Venezuela. As a result, Brent crude fell below $80 for the first time since July before recovering some of the losses.

Crypto

The favorable macro tailwinds from the cross asset rally combined with ETF approval optimism led to another good week for crypto assets. Bitcoin reached the top of the 35–37k band and is trying to break out above it.

Ethereum

ETH rallied sharply this week after confirmation of Blackrock’s ETH ETF plan and was above $2000. ETH was also higher against the BTC pair and has moved up from the 0.5 region, while Bitcoin dominance retreated to ~52.6%. BTC needs to consolidate while ETH-BTC moves higher and dominance goes lower for a reallocation of capital to alts for a broad based altcoin season.

Solana

The SOL rally we’ve seen over the last month continued with it breaking above the weekly $30–45 range. If it can consolidate and turn this range into support, the rally can extend further. The narrative around it has also been strong with SOL being seen as the winner of the monolithic stack in the monolithic vs modular scaling debate.

Read more from the author (and our macro researcher), Fractalmonk: https://medium.com/@fractalmonk999

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