SignalPlus Macro Analysis Special Edition: Euro Crisis

Global politics has once again become the focus, with French President Macron unexpectedly announcing the dissolution of parliament and new elections after his allies suffered a crushing defeat in last weeks European Parliament elections. The RN/National Rally led by Le Pen has made significant progress in the polls, which seems to indicate that the far-right party is expected to win an absolute majority in the June 30 election, increasing the risk of a French Brexit and the current finance minister has also warned of a possible financial crisis.

The rise of NR marks a turbulent period in European politics, with far-right parties making significant gains relative to mainstream ruling parties under pressure from immigration policies and rising living costs. This has been a historic year for democratic elections, with more than 70 countries around the world holding federal elections, and right-wing politicians gaining votes in Germany, France, the Netherlands, Spain, Italy, Argentina and elsewhere. Is this a preview of the upcoming US election turning further toward nationalist issues? It certainly seems to be the case.

Market sentiment deteriorated from the outset, first in French stocks and bonds, and then quickly spread to the credit market. The US 5-year investment grade CDS spread widened by 2.5 standard deviations in a short period of time. Market liquidity was generally poor, and the one-way de-risking capital flow from Europe put pressure on the historical highs of the US credit market.

Other macro assets have remained mostly stable, with the SPX and Nasdaq still hovering near their year-to-date highs thanks to AI optimism, but the shrinking leading group problem remains evident, with only AI-related stocks standing out.

Economic data from last Friday did not help, with the University of Michigan鈥檚 consumer confidence index at 65.6, well below the expected 72 and the lowest level since November. Inflation expectations are also moving in the wrong direction, with the key 5-10 year median inflation expectation stuck at 3.3%, while the long-term average expectation has soared to 5.3%, the highest level since 1994.

Crypto market sentiment remained subdued last week, with a lack of catalysts and weak price performance, with a string of slow liquidations of futures longs over the past two weeks. Cryptocurrency also had a weak quarterly performance compared to the general rise in global stocks, commodities and even gold, down 5%, and a decline in newly registered Bitcoin addresses year-to-date, which is consistent with our long-term thesis that the current rally is different from previous cycles and is mainly driven by TradFi interest in a few tokens (or indeed only BTC), while the influence of cryptocurrencies themselves is shrinking as general investor interest turns to the next hot spot (AI), and the remaining builders in the industry are mainly focused on improving the efficiency of blockchain and capital markets. Compared with the get rich overnight theme that cryptocurrencies are accustomed to, these projects have lofty goals, but usually take longer. Who says cryptocurrencies cant be more mature?

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