Digital Asset Market: Crypto.com has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), its chair Gary Gensler, and four commissioners after receiving a Wells Notice from the regulator. The notice states the SEC's intention to bring charges against the crypto exchange. In its court filing, Crypto.com seeks to prevent the SEC from expanding its jurisdiction to cover specific network tokens sold on the platform. The company believes this is an "unauthorized overreach" and seeks declaratory and injunctive relief. Crypto.com has also petitioned the CFTC and SEC to clarify the regulation of certain cryptocurrency derivative products. The SEC has been regulating the crypto industry through enforcement actions, a strategy that Crypto.com and other crypto companies are fighting against.
Bitcoin has not been able to sustain levels above $66,000 since July 31 and could not cross $64,000 yesterday. There is no strong correlation between Bitcoin and macro indicators and factors, including the fed rates and debt indicators. Socio-political events seem to be the primary driver of Bitcoin rallies. Bitcoin price rose in the last 24 hours, but the market is unsure if this rally is sustainable. This is due to concerns about the US economy and the Federal Reserve's decisions regarding interest rates. The market reacted positively to last week's better-than-expected jobs data, but questions remain about the economy's overall strength. The Fed is expected to lower interest rates at their Nov. 7 meeting, but the likelihood of a 0.5% cut has decreased. Overall, the market is uncertain about the economy's future and how it will impact Bitcoin price.
Macro Economics: Markets are sending a clear message to Chinese President Xi Jinping that more stimulus is needed to sustain the country's recent stock market rally. This is evident from the disappointment expressed by investors and the mismatch between their expectations and the announcements made by the National Development and Reform Commission (NDRC) in their first briefing after a week-long holiday. The iShares China ETF gave up 1/3rd of its recent rally on Monday. The NDRC, China's economic planning agency, announced a modest 200 billion yuan advance in spending next year, falling short of the anticipated 3 trillion yuan fiscal package. While the NDRC head expressed confidence in meeting annual economic goals, markets were unimpressed with the lack of specific figures and details. The underwhelming stimulus measures have caused investors to take profits and wait for more concrete plans. This highlights the more significant issue of China's prolonged economic downturn and the need for a more robust policy response from the government.China's decision not to announce new stimulus plans has also caused a ripple effect in other markets, particularly in the metal industry. Iron ore prices have plummeted, proving that analysts at Goldman Sachs were right in their previous advice to investors. The National Development and Reform Commission's lack of action has caused shockwaves in Asian equity markets and has led to a drop in metal prices. The oversupply and property crisis in China's steel industry continues to be significant factors affecting the ferrous supply chain. As a result, Goldman Sachs recommends fading the iron ore rallies, with other metal prices also being affected.
Equities: The US economy remains resilient, as shown by the better-than-expected September jobs report. This has caused a shift in the market where positive economic news is now viewed favorably for stock prices. However, there are also concerns about potential inflation and interest rate increases, leading to investors adjusting their expectations and a decreased likelihood of future rate cuts. While this may strain stock prices in the long run, a stronger economy is ultimately seen as better for driving stock prices. This sentiment was reflected in Tuesday's rebound of the S&P 500, with technology stocks leading the way. However, rising bond yields and worries about Middle East conflict and the upcoming election tempered the market's optimism. Uncertainties surrounding the Fed's future decisions on interest rates continue to weigh on investors' minds.
The Fed and US Treasury: The Federal Reserve's decision to cut interest rates by 50 basis points last month due to concerns of a weakening labor market appears unnecessary in light of the latest U.S. jobs data, which showed robust job growth and a decreased unemployment rate. Some economists are now arguing that the move was hasty and unnecessary. Expectations for a further 50 basis-point cut in November have significantly reduced, with most predicting a more modest quarter-point cut. Some analysts also point to concerns about inflation and its impact on everyday Americans as reasons for underlying negative economic sentiment. The Fed at the time defended the oversized cut, saying there were signs that inflation was moderating and the labor market was weakening.
Geopolitical: Oil prices fell nearly 5% on Tuesday, ending a five-day winning streak, as tensions in the Middle East and speculations of China's economic stimulus failed to keep fueling the rally. West Texas Intermediate dropped below $74 a barrel. At the same time, Brent hovered around $77 after a surge of about 12% in the past five days, driven by fears that the conflict between Israel and Iran could disrupt the Middle Eastern oil supply. However, talks between the two countries and a lack of significant stimulus measures from China eased these concerns, causing a technical price correction. The evacuation of an oil platform due to Hurricane Milton in the Gulf of Mexico also had a minor impact on prices and is not expected to affect production. Gasoline prices are also rising, but for a different reason, as tensions in the Middle East remain the main driver. Analysts believe that if Israel doesn't attack oil facilities, prices may continue to drop in the next month.
View from our desk
Bitcoin briefly surged to $64K, driven by positive jobs data, optimism, and Chinese stimulus. However, the rally quickly faded, reflecting a lack of strong investor conviction. The market remains indecisive, with recent rallies failing to gain traction. Large open interest on $100K and $45K strike options highlights a broad divergence in market expectations. The ongoing consolidation around $60K is unlikely to persist much longer, with the options market showing a skew to the upside.
China's recent stimulus measures fell short of market expectations, leading to a drop in Chinese stocks. Unlike the US, China takes a more cautious and incremental approach to economic stimulus. This slower, steadier strategy is consistent with their cultural and political norms, and while it may not satisfy immediate market demands, it reflects a long-term, controlled approach to economic recovery.
Meanwhile, the easing of tensions in the Middle East is a positive development, possibly influenced by the upcoming US presidential elections and pressure from the US administration. However, the core issues remain unresolved, and further escalations may be imminent, keeping the region's stability in question.
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