(17 JULY 2019)DAILY MARKET BRIEF 1：Summer trading and Libra

The summer doldrums are here. Volatility in FX markets has all but dried up, only GBP providing fireworks as UK and EU leaders quarreled. Declining interest rate expectations and rising stock of negative-yielding bond have marginally exciting the FX carry trade. Traders are taking asymmetrical risk by going long TRY in our view. While equities are bobbing up-and-down with every rumor, news flash, and Trump tweet. S&P 500 weakened marginally as falling oil prices (due to easing tensions between US / Iran) weighed on energy stocks and Dallas Fed Kaplan suggested US rate cuts were “tactical adjustment” verse full easing cycle. The compressed US front-end rates jumped on the statements. Transportation stocks reported higher than expected 2Q earnings continuing a solid trend of earning reports.

Only the public thrashing of Facebook’s crypto play Libra before the Senate Banking Committee kept us from running to the beach. Granted, this committee was significantly more prepared to handle the concept of potential global cryptocurrency, then when Facebook CEO Market Zuckerberg ran over congressional lawmakers last year. The overall impression was that US lawmakers were no happy. One factor that did not sit well (among a long, long list) with members that Libra Association would be regulated by the Swiss government specifically Swiss Financial Markets Supervisory Authority (FINMA). Head of Facebooks blockchain subsidiary Calibra David Marcus clearly stated that Libra Association intends to comply will all U.S. tax, anti-money laundering, and anti-fraud laws. However, with primary jurisdiction in Switzerland it hard to imagine anything more than a light touch approach by Libra. We have doubts that Libra will be anything more than another digital payment system rather than a disrupting payment token (lack of decentralization is a HUGE issue for us). The reality is Facebook with root still very much in the “real world” and enjoying the blanket protection of the US government is unlikely to push the project much further if the US puts the kibosh on it. The negativity was felt in the crypto space as Bitcoin hand another down day falling to $9238 overnight (50d MA). We would argue that Libra's exposure should be positive for bitcoin as it highlights the complexity in developing widely accepted alternatives. Marcus will be defending Libra in front