Compass Investments

the interbank market Sunday, Ethereum lost nearly 3/1 of its value, falling from $2.9k to just $2.1k. On the TradFi market, Japan’s TOPIX banking index fell 13% and the Nasdaq100 U.S. tech index was down 5.4% from Friday’s close, the largest gap since covid.

There is no major catalyst for the decline at the moment, and while many investors are already struggling to find a motive to sell assets at a discounted price, chaos is not evident.

On Friday, legendary investor Warren Buffett announced that he had sold half of Apple’s stock, bringing Berkshire’s unprecedented unrecorded cash holdings to $277 billion. And over the weekend, it was revealed that shipments of Nvidia’s next-generation Blackwell AI chips will be delayed for at least 3 months due to manufacturing defects – two major setbacks that market leaders had priced in weeks ago.

In 2024, as asset prices continued to ignore deteriorating economic data, buyers were optimistic that rising unemployment and declining inflation were a positive catalyst for global central banks to ease financial conditions by reducing the global financial crisis by lowering interest rates and lowering interest rates on the global economy.

Last Tuesday, the Bank of Japan was forced to raise its target short-term interest rate from 0.1% to 0.25% to counter the destabilization of the yen and domestic inflation. This has put tremendous pressure on traders who previously made super profits on dollar assets by cutting both their net interest margins and short yen positions, buying yen with high inflation at good interest rates.

the next day, the U.S. Federal Reserve did not lower its target level for the federal funds rate, despite the fact that economic data has been steadily deteriorating and the rapidly declining U.S. Treasury yields justified its appearance in the eyes of many observers.

the core of the Fed’s problem is the aforementioned caretrade.Lower interest rates, especially after the Bank of Japan was forced to raise its own interest rates, has led to a structural devaluation of the U.S. dollar, further reducing the net interest margin of carry traders and short yen positions, which has put additional pressure on long positions in dollar assets.

The global economy is caught between a hammer and anvil, and market participants are finally having to face this unpleasant reality.

many were stunned by the decline in recent weeks, but on the day the nasdaq peaked, there were clear signs of an impending decline after it was revealed that the consumer price index for the 11th month was in deflationary territory on a monthly basis