The market was relatively calm last week, and risk appetite remained. The U.S. stock market, U.S. bond yields, the U.S. dollar exchange rate, gold and BTC prices were all approaching mid-term or year highs. Economic data in the U.S. was strong, with retail sales higher than expected (actual up 0.6% m/m, control group up 0.7% m/m), and jobless claims holding steady, continuing to support the soft landing narrative.
Earnings season also worked in the market’s favor, with results from U.S. banks, Netflix and TSMC (up 9.8%) all far exceeding expectations. The SPX rose for six consecutive weeks, its best streak of gains this year, while investors remain confident in the market and corporate earnings, with options-implied earnings-day volatility about 5% below the recent average.
The recent focus has naturally been on the US election. There has been a lot of discussion recently about the divergence between Polymarket’s predictions (Trump has a 60% chance of winning) and traditional predictions (still close to 50/50). Regardless of the details, macro asset trading may bring With Trump's tendency to win entering November, bond traders generally expect that Trump will be more active in promoting fiscal spending in his second term. The recent trend in U.S. bond yields has shown a high correlation with Trump's probability of winning.
BTC appears to be waking up from a long slumber, breaking out of its descending channel and seeking to challenge all-time highs before the election. The price recently broke through $68,000, while ETFs have seen inflows of about $2.4 billion in the past six trading days, and BTC futures open interest has also surged accordingly, which may be a positive indicator that the market is establishing new long positions.
Encouragingly, the increase in BTC inflows coincides with a significant increase in derivatives trading activity on the Chicago Mercantile Exchange (CME), with CME futures open interest reaching an all-time high of over $11.5 billion. Additionally, the growth in CME open interest is driven by "direct participants" rather than leveraged inflows, according to K33 research, which presents a healthier bullish structure and a more aggressive buying bias. In addition, considering that traditional financial (TradFi) participants are mostly restricted from trading on centralized exchanges, the surge in CME trading activity also indicates the participation of more mainstream and TradFi participants.
The market is currently focused on the US election. For cryptocurrencies, the most favorable outcome is that Trump wins and the Republicans sweep both the Senate and the House, giving the Trump/Vance-supported digital asset reform plan a chance to pass Congress. The second is that Trump wins but Congress is divided, and the reform plan may encounter some resistance from the House Financial Services Subcommittee, but current senior congressman Maxine Waters has previously urged the inclusion of stablecoin legislation in the National Defense Bill.
On the other hand, if Harris is elected but Congress is split or controlled by Republicans (the probability of a Democratic sweep is low), it will bring more uncertainty. Harris has not yet elaborated on any cryptocurrency-related policy goals, only saying that he wants to "encourage innovative technologies such as AI and digital assets." Let's keep watching!
