😲 Elections, Bitcoin Drama!

Good Morning!

In a surprise twist, France's left-wing coalition, the New Popular Front, snagged the most seats in the National Assembly but fell short of a majority. Macron's centrists and Le Pen's far-right followed closely. The result? A fragmented parliament that'll keep everyone on their toes. Looks like French politics just got a lot more... interesting. Vive la democracy!

In today’s email:

• Fed Watch: Fed Chair Powell's upcoming testimony in focus this week

• Bitcoin: Bitcoin stuck around $57k but looking weak here

• Optimal Portfolio: The traditional 60/40 is due some updates

• Gold: China 🇨🇳pauses gold purchases

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THE BIG IDEA

France's election results shake markets, but impact tempered by lack of clear majority.

The French left's surprise victory in legislative elections sent ripples through European markets, but the lack of a clear majority cushioned the blow. While the Stoxx 600 and CAC 40 initially dipped, they quickly recovered as investors realized the left-wing coalition's influence would be limited. The euro and French bonds followed suit, paring early losses.

Market pros like Chris Weston of Pepperstone Group Ltd. noted that while a far-left government would've spooked investors, the fractured result actually contains potential fallout. The spread between French and German 10-year yields, a key risk indicator, has narrowed to around 70 basis points - lower than during last month's market turmoil.

Meanwhile, U.S. equity futures are feeling the Monday blues after last week's rally.

All eyes are on Fed Chair Powell's upcoming testimony and inflation data, as traders look for signs of potential policy easing. In the corporate world, Boeing's agreeing to plead guilty to criminal conspiracy is making waves.

Crypto's not catching a break either, with Bitcoin stumbling on fears of Mt. Gox creditor sell-offs. And in China, the central bank's flexing its muscles over market interest rates.

Stay tuned for a packed week of bank earnings, Biden's political maneuvering, and commodities action as hurricanes and wildfires threaten oil production. It's never a dull moment in the markets!

MARKETS AT A GLANCE

TOP NEWS

France's hung parliament could complicate crypto regulation efforts.

France's election shocker: Left-wing coalition wins most seats, but no one gets a majority. Macron's centrists and Le Pen's far-right trail behind. Result? A political headache that might slow down new legislation, including crypto rules. Mark Foster from the Crypto Council for Innovation warns this could make crypto policy "uncertain and difficult." France has been crypto-friendly lately, with 74 registered crypto firms last year. But with MiCA rules rolling out and more crypto regs on the horizon, this political gridlock might throw a wrench in the works.

Algorithmic trading is revolutionizing the $7.5 trillion forex market, with machines now handling 75% of spot trades.

Wall Street giants are racing to develop advanced trading algorithms to compete with upstart market makers. BNP Paribas' Rex system, featuring algos like Viper and Chameleon, exemplifies this trend. While automation brings efficiency and cost savings, it also poses risks like flash crashes during volatility spikes. The shift is transforming trading floors from noisy hubs to quiet tech centers. Banks face shrinking profit margins and fierce competition from firms like XTX. As a result, they're pivoting from traditional traders to quants and developers to stay competitive in this new algorithmic arms race.

The optimal investment portfolio for the next decade may still resemble a 60/40 split, but with important adjustments.

Goldman Sachs' head of asset allocation research suggests a balanced approach is key for the coming years. The proposed optimal portfolio: 1/3 equities (biased towards growth stocks), 1/3 bonds & 1/3 real assets. This maintains the classic 60/40 balance, but with targeted exposures. Growth stocks could capture productivity gains from AI and new technologies. Bonds offer protection against stagnation. Real assets (including some equities) help hedge inflation risks. The strategy aims to diversify structural risks while positioning for potential productivity boosts and more volatile inflation. It's a nuanced take on the traditional 60/40 split for our evolving economic landscape.

CRYPTO

Crypto market faces a downturn as trading week begins in Asia, with broader economic factors at play.

The CoinDesk 20 index dropped 7%, while Bitcoin fell 5%, reflecting a broader crypto market contraction. Nearly $175 million in long positions were liquidated in 24 hours. This downturn comes amid mixed economic signals and shifting expectations for Fed rate cuts. Despite the dip, some traders see positive signs in Bitcoin's price action, with a bounce from recent lows. The RSI (Relative Strength Index) shows potential bullish divergence on daily timeframes, hinting at possible oversold conditions.

Early Ethereum ICO project Golem transfers $100M in ETH to exchanges, potentially signaling sell-off.

Golem, one of Ethereum's first ICO success stories from 2016, has moved over $100 million worth of ETH to various exchanges in the past month. This large-scale transfer could increase selling pressure in the crypto market. Most transactions are under $10 million to major exchanges, occurring daily. Golem raised $8.7 million in its 2016 ICO, riding the early wave of crypto enthusiasm. Currently working on AI tools, but GLM token value has significantly declined since its 2018 peak.

Notorious crypto-drainer group falls victim to its own type of scam, losing $30,000 in ETH.

Pink Drainer, a group infamous for helping steal over $85 million in crypto assets, ironically became a victim of an "address poisoning" scam. They lost 10 ETH (about $30,000) by accidentally sending funds to a fake wallet address. This incident underscores the importance of vigilance when handling crypto transactions, regardless of one's level of expertise in the field.

GOLD

China's central bank hits pause on gold purchases for two months straight, possibly waiting for a price dip.

Well, well, well... looks like the dragon's lost its appetite for gold! The People's Bank of China's been on a gold-buying diet for two months now. After 18 months of gobbling up the shiny stuff like it was going out of style, they've suddenly gone cold turkey. Are they full up at 72.80 million troy ounces, or just waiting for a juicier price? The plot thickens!

DAILY ECONOMIC CALENDAR (ET)

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