Weak US core PCE (and European CPI) data capped a risk-friendly week, with the US yield curve continuing its bullish steepness, while US and Chinese stock markets both hovered at cycle highs. On a 3-month moving average basis, annualized core inflation for CPI and PCE has fallen back to around 2%, moving towards the Fed's 2% long-term target, allowing the Fed to continue to focus on its mission in the job market. After the CPI release, several investment banks reiterated their forecasts for a 50 basis point rate cut in December, while interest rate futures pricing in a 50 basis point rate cut in November returned to around 50%.
On the other hand, US consumer confidence jumped to a 5-month high on the back of aggressive Fed easing and falling oil prices. Global beta trading has picked up, with Chinese and Hong Kong stocks having their best week in years (the CSI 300 Index rose 16%), thanks to China's "heavy" stimulus policy, with prominent investor David Tepper calling on market investors to "buy everything" China-related assets after the People's Bank of China announced its easing policy.
For example, as China eased restrictions on home purchases, iron ore has risen 20% since late September, while rapidly surging market trading activity has caused the Shanghai Stock Exchange system to outage, while Chinese ETFs have experienced the highest single-day inflows in 2021. the highest level.
While U.S. and Chinese markets are performing strongly, Japanese stocks are facing a new round of turmoil following Shigeru Ishida's surprise election victory. The former Japanese defense minister has publicly opposed "Abenomics" in the past and supported the normalization of the Bank of Japan's policy. Japan's stock index futures fell 6% and the yen rose to 142 as investors worried about further interest rate hikes by the Bank of Japan and a more aggressive geopolitical stance by the new prime minister. Next, the Bank of Japan's speech this week will be the focus of the market.
Back in the US, this week will see a number of important economic data releases, including the JOLTS, ISM manufacturing and services indexes, and of course the non-farm payrolls report. In addition, there are multiple Fed officials speaking this week, and the market does not think that officials will try to "stir up the market" despite the fact that US financial conditions have eased to a cycle high. Powell will speak on the US economic outlook at the National Association for Business Economics meeting on Monday, and the market expects that his speech will not be far from the last FOMC meeting, especially considering that the recent trend of inflation data is in his favor.
In addition, the United States will hold a televised debate for vice presidential candidates on Tuesday evening, but the market expects this to have little impact on the election, as current polls show a very tight race. China is on holiday during the Golden Week, so macro and cryptocurrency trading activity is expected to be relatively flat during the Asian session this week.
In terms of cryptocurrencies, BTC has performed well against the backdrop of loose liquidity, with strong economic growth, stable corporate earnings, and dovish central banks laying a solid foundation for BTC's rebound in the fourth quarter. Although ETF flows have been disappointing since July (ETH ETF outflows of $610 million and BTC ETF outflows of $330 million), ETH has performed well in the recent rebound, and altcoins have also returned strongly.
As crypto's correlations with macro assets remain high, particularly with the SPX Index, we believe the friendly macro backdrop will continue to provide strong support for crypto prices in the fourth quarter. Additionally, with the Kamala Harris camp “supporting” cryptocurrencies on the campaign trail, we remain bullish on the near-term price action. As investors shift into "buy the dip" mode, expect targeted put selling strategies to gain popularity. I wish you all smooth trading and a happy holiday!
