Over the past week, as the U.S. election entered its home stretch and risk markets ground to a halt, both parties ramped up last-minute mainstream media campaigns, including an unprecedented three-hour Trump-Rogan interview that has more than 2,500 views on YouTube alone. Thousands of views. Moreover, perhaps in response to recent U.S. pressure, Israel's attack on Iran late Friday was more restrained than expected, providing an opportunity for Tehran to relent, which did not respond to the attack through official channels.

The lack of macro risks and the coordinated inflation trend have continued to squeeze risk premiums, US investment grade credit spreads have narrowed to near a 43-year low, and stock pricing also implies that there is almost no possibility of a recession in the future.

Bond and equity expectations have been diverging on recession expectations, with equities being more correct so far, causing the 10-year Treasury yield to rise +60bps over the past month, with bond managers reporting one of the largest duration reductions in the past 25 years.

Yields have risen in five of the last six weeks, with the 10-year yield hitting its highest level since July, and more than $183 billion in new bond supply is due in the coming days. Fixed income markets are likely to remain under pressure with key employment data such as JOLTS and NFP set to be released in the coming week, while former Fed Governor Kevin Warsh has also joined the fray, expressing concern about the Fed's recent dovish turn and inflation framework Criticisms were made.

Speaking of expectations errors, the recently released University of Michigan Consumer Sentiment Report showed that 1-year inflation expectations slipped to 2.7%, but the 5-10 year average inflation expectations confusingly rose to a high of 6.6%, the highest level since 1985. The divergence between this and the median inflation expectation is almost unprecedented, and the market seems willing to ignore this discrepancy for now, but if the economy continues to show resilience, inflation concerns may resurface in the coming quarters.

Meanwhile, the SPX hit its 47th all-time high on October 18, with previous records being set in 1995 (+77) and most recently in 2021 (+70). Investors are naturally almost “all-in”, with JPMorgan research showing implied cash allocations near 25-year lows and equity futures positioning at multi-year highs. In the event of a potential Trump victory, will stocks become an “inflation hedge”? This is certainly worth watching…

While official odds still show 50–50, stock market trading is now clearly leaning towards a Trump victory following a series of successful interview campaigns, and similar tendencies can be observed in gold and cryptocurrency prices, with the skew of post-election call options being pushed higher as a hedge.

As we head into the final week before the election, the stock market will have a busy week of corporate earnings releases, with Ford, Alphabet, AMD, McDonalds, Visa, MSFT, Caterpillar, Meta, Coinbase, Starbucks, Amazon, Apple, Intel, and Mastercard all set to report this week. On the economic data front, this week will feature JOLTS, ADP, Consumer Sentiment, GDP, Challenger Layoffs, Core PCE, ISM, and Nonfarm Payrolls, so get ready for a ton of macro data in the coming weeks!

Cryptocurrencies have had a turbulent week, with BTC retesting $69k earlier before retreating to $65k support and remaining in the current consolidation pattern. BTC net inflows reached nearly $1 billion last week, the third consecutive week of inflows, and institutional demand remains strong. In addition, BTC dominance continues to rise (59.8%), while ETH is relatively inferior, with BTC outperforming ETH by 10% per week, while Vitalik is under pressure due to the Ethereum Foundation's suspected sale of ETH in the past few months.

Additionally, reports of a U.S. government investigation into Tether caused USDT to drop to as low as 0.9965 before recovering close to its peg, with CEO Paolo Ardoino formally denying the claims, and the market reacting more conservatively to the rumors this time around.

In terms of price action, BTC is likely to continue to track SPX, with its 3-month correlation with SPX at a 1-year high, while its correlation with the USD and inflation is close to zero.

Wishing all readers good trading during this busy week!