Risk-on sentiment continued in an otherwise muted week, with US equities, treasuries yields, USD FX, gold and BTC prices all grinding to interim or YTD highs. US data was robust with retail sales (+0.6% MoM in real terms, +0.7% MoM in control group) coming in above expectations and jobless claims holding steady and keeping the soft landing narrative alive.
Earnings season was also well received with US banks, Netflix, TSMC (+9.8%) all coming in well above expectations. The SPX saw its best winning streak YTD with its 6th consecutive positive week, while investors remain extremely confident with option-implied earning day moves at ~5% below recent averages.
The near-term focus will naturally be on the US election with a lot of recent discussion over the Polymarket discrepancy (60% in favour of Trump) vs traditional prediction sources (still close to ~50/50). Regardless of the nuances, it’s likely that macro assets will trade into November with a pro-Trump bias, with treasury yields showing the highest correlation in the interim as bond traders widely expect the former President to be even more prolific with his fiscal spending in his second term.
Bitcoin appears to be waking from its long slumber and breaking higher against its downward channel and looking to challenge the ATHs as we head into the elections. The recent break of 68k was accompanied by ~$2.4B in new BTC inflows over the past 6 sessions, along with a corresponding spike in BTC futures OI which is a constructive indicator or new longs being established.
Encouragingly, the rise in BTC inflows is matched by a substantial jump in CME’s derivative activities, with futures OI hitting a fresh ATH at over $11.5B. Furthermore, research from K33 also suggests that the jump in CME OI is led by ‘direct participants’ instead of leveraged inflows, pointing to healthier bullish construct with more active buying intentions. In addition, the jump in CME activity is also suggestive of more mainstream and TradFi participation, given the latter’s restrictions on trading on most CEXs.
Finally, with the focus on the US election results being front and center, the most positive outcome for crypto would be a Trump win along with a Republican sweep (of House & Senate), allowing the Trump/Vance endorsed digital asset reform plans to have a realistic chance of passing through congress. A Trump win with a divided congress would be the next preferrable outcome, with some resistance out of the House Financial Services Sub Committee, though the current ranking member (Maxine Waters) has previously urged the passing of stablecoin legislation as a part of a National Defense act.
On the other hand, a Harris win with a Republic or mixed Congress (low chance for a Democratic sweep) will have much more uncertain outcomes, as VP Harris has yet to detail any crypto policy goals in any detail beyond to “encourage innovative technologies like AI and digital assets”. Stay tuned!
