Equities and crypto face synchronized deleveraging amid macro headwinds
Hedge funds have shifted to their most defensive positioning in five years, mirroring the automatic deleveraging seen in crypto markets. The risk-off environment is driven by hotter inflation data and geopolitical tensions rather than a fundamental AI collapse.
Global risk assets are undergoing a significant deleveraging event, with hedge fund positioning shifting from long to neutral or short, described as the most defensive stance in five years. This move mirrors the aggressive automatic deleveraging observed in cryptocurrency markets on October 10. The macro backdrop has deteriorated due to hotter-than-expected CPI and PPI prints, credit default risks in neoclouds, and geopolitical tensions, including the closure of the Strait of Hormuz. Global markets are struggling under these pressures, with the Chinese market down for 10 consecutive weeks and historic crashes recorded in Indonesian and Turkish stock markets. Bitcoin is currently holding above $81,000, with analysts watching $83,500 as a key breakout level; Bollinger Bands compression suggests a volatility spike is imminent. The Milk Road Macro Index has been in the red for weeks, a trend that has historically preceded dips in the S&P 500. Despite the risk-off environment, jobless claims remain solid, and the S&P 500 is trading in the 7,500-7,600 range. Analysts argue that the current market weakness is driven by leverage unwinding and macro uncertainty rather than a fundamental AI bubble burst, expecting the risk-off posture to reverse once macro headwinds clear.