The U.S. non-farm payrolls data significantly exceeded expectations. The number of employed people increased by 254,000 (expected to be 150,000). The unemployment rate fell back to 4.05%. Average hourly wages remained strong, which triggered the market's question on the wisdom of the Federal Reserve's 50 basis point interest rate cut last month. doubts.

The reaction in the fixed income market was very intense, with the yield curve sharply flattening, short-term yields rising by 20 basis points, the 10-year yield breaking through the upward resistance level of 3.93%, and expected to exceed 4%, while terminal interest rates soared by 25 basis points. basis points to nearly 4.25%, and the market's expectations for interest rate cuts have cooled down to only 25 basis points of interest rate cuts in the next four FOMC meetings.

While fixed income markets struggled, the dollar strengthened against all major currencies, especially the yen, which rebounded strongly after Japan's new Prime Minister Shigeru Ishiba said he would maintain loose monetary policy and launch a new stimulus package.

As expected, global stocks had another strong week, with most indices rising, and technology stocks performing particularly well. Strong economic data, friendly central bank policies, and even the timely cessation of the US dockworker strike gave investors good reasons to continue their risk-on attitude. In addition, a record $1.4 billion in funds flowed into Chinese assets through the FXI ETF, adding to the enthusiasm in the world's second-largest economy, further driving the rise of risky assets.

If we look back at history, Chairman Powell's 50 basis point rate cut will appear more dovish. After all, both inflation and unemployment are still close to extreme levels. On a normalized basis, PCE remains around the top 15% quantile, while unemployment is close to a decade low. Furthermore, similar to 2020, the one-way uptrend in stocks coincided with central banks around the world starting to cut interest rates, which led to inflation expectations finally starting to rebound over the past few weeks.

From a technical perspective, the chart of the US stock market looks very positive, with the indices hitting new 52-week highs at a rare pace, and other momentum indicators also showing a breakout higher. There is no doubt that current valuations are very high, with the SPX forward P/E ratio at extremely high levels, but price action is not necessarily driven by valuations.

While macro markets are celebrating new highs and soft landing scenarios, cryptocurrencies have underperformed, having their worst start to October since 2019, with BTC starting the month as low as $60,000, and other altcoins not performing similarly. Not far away (weekly decline of 10%), some local FOMO sentiment seems to be outweighed by the strong gains in A-shares, with nearly $500 million in long cryptocurrency futures liquidated in the first few days of October, according to Coinglass.

ETF inflows recovered slightly on Friday, but the overall trend remains worrisome. In addition, the failure of cryptocurrencies to act as a “risk-on” asset amid recent tensions in the Middle East cannot be ignored, and until that changes, cryptocurrencies will behave more like a high-beta asset.

Nonetheless, we expect loose monetary policy, strong risk appetite, and a rebound in Trump’s chances of winning (due to Kamala’s poor handling of hurricane relief) to provide strong support for cryptocurrency prices in the fourth quarter. Although the road may be bumpy, we are still pleased with the recent price action, with each decline followed by a higher low, and BTC still has a chance to set new highs before the end of the year, after all, we are only entering October.