October Macro Monthly Report: The interest rate hike cycle is nearing the end, and ETFs are expected to start a new round of Bitcoin rally

2023-10-31 11:38:56

! [October Macro Monthly Report: The interest rate hike cycle is nearing its end, and ETFs are expected to start a new round of Bitcoin rally] (https://cdn-img.panewslab.com/panews/images/P7323IKdAe.png)

In October, the three major U.S. stock indexes, Europe, Asia-Pacific and other major global securities markets generally showed a state of volatility adjustment. Among them, after experiencing a downward trend in the index in early October, the world’s major stock indexes rebounded rapidly, and after peaking around October 16, the index fell again. In the meantime, due to the impact of the Mid-Autumn Festival and National Day holiday, domestic A-shares were not traded in the first half of this month, and the three major A-share indexes showed a one-way downward trend after a period of sideways trading in the middle of the month.

In terms of cryptocurrencies, after a period of low-level sideways trading, crypto prices have risen rapidly since mid-October. In particular, the issuance of bitcoin spot ETFs is expected to heat up, the US bond is “bearish”, and the fourth halving is approaching, and the price of bitcoin once rose above $35,000, the first time since 2022. Some cryptocurrency practitioners believe that a new round of cryptocurrency bull market has begun to brew, and the peak price of Bitcoin is expected to exceed $138,000 in the next few years.

According to the U.S. Department of Labor, in September, the year-on-year increase in the U.S. consumer price index (CPI) was the same as in August; The month-on-month increase was 0.4%, a slight slowdown from the 0.6% increase in August. During the same period, other relevant price indicators have approached pre-pandemic levels, and inflationary pressures have continued to weaken, gradually approaching the Fed’s 2% target. Wealthbee believes that the trend of “disinflation” in the United States will continue in the fourth quarter, but it has achieved more obvious results.

In view of the continued easing of inflationary pressures in the United States, the market generally expects that the Fed’s current round of interest rate hike process is nearing the end. In the past few weeks, a number of Fed officials and members of the Federal Open Market Committee have stated that US Treasury yields have climbed, the downward trend in US core inflation is expected to continue, and the need for further interest rate hikes by the Fed has diminished. On October 25, the Fed’s federal funds rate swap market showed that the probability of a 25 basis point rate hike by the Fed in November has fallen below 1%.

It is worth noting that despite the obvious effect of “disinflation”, the US economy is still hot. According to the U.S. Department of Commerce, in September, U.S. retail sales data increased by 0.7% month-on-month, exceeding market expectations of 0.3%. In a report in October, Morgan Stanley also raised its forecast for US Q3 GDP growth to 4.9%. Affected by this, while inflation continues to decline, in the fourth quarter, U.S. energy and labor prices may still remain high and fluctuate.

Affected by the Fed’s interest rate hike cycle, US Treasury yields will continue to rise in 2023. In September, despite the Fed’s pause in interest rate hikes, the 10-year Treasury yield still rose all the way, far exceeding the short-term Treasury yield, and the bond market was “bearish”.

On October 20, the yield on the 10-year Treasury note topped 5%, hitting a new 16-year high. The rapid rise in U.S. credit rates after the rise in U.S. Treasury yields has adversely affected the U.S. economy, the operation of equity and credit markets. Among them, on October 19, the 30-year home mortgage rate in the United States once approached 8%, the first time since 2000, which greatly affected the consumption desire of potential home buyers.

Given that the Fed’s rate hike cycle is coming to an end, and while an insurance rate hike by the Fed is not ruled out, investor expectations have already begun to shift, and it is unlikely that US Treasury yields, especially the 10-year US Treasury yield, will reach new highs amid the uncertain global geopolitical backdrop and the possibility of short-covering after the spike in yields in previous weeks.

While Treasury yields continue to be strong, U.S. stocks and major global stock markets are showing volatility adjustments. Around October 16, the three major U.S. stock indexes reached their peaks this month. On October 18, the three major stock indexes of the New York stock market fell significantly: the Nasdaq fell -1.62%, the S&P 500 fell -1.34%, and the Dow Jones fell -0.98%. In addition to U.S. stocks, major global indices such as Europe and East Asia also showed volatile adjustments. Affected by the Mid-Autumn Festival and National Day holiday, the domestic A-share market did not open at the beginning of the month, and after a period of narrow consolidation in mid-October, the three major A-share indices showed a downward trend.

Considering that the Federal Reserve will still maintain high interest rates for a period of time, as well as the recent Russia-Ukraine conflict and the Palestinian-Israeli conflict, there is still a lot of uncertainty in the capital market, and investors, especially short-term investors, are still mainly wait-and-see.

In October, the cryptocurrency market showed a doxxing trend. Among them, affected by factors such as the expected approval of bitcoin spot ETFs and the “steep” yield of U.S. Treasury bonds, the price of bitcoin rose rapidly in mid-to-late October.

Indeed, with the SEC losing a series of lawsuits with crypto asset managers, market expectations for spot ETF approval have risen. As far as bitcoin trading is concerned, the approval of spot ETFs not only means that investors can enter the crypto market in a compliant way, but also that investors do not need to directly hold and trade bitcoin, but only need to buy ETFs to obtain investment returns, which greatly improves trading efficiency.

Compared with the cryptocurrency market with an overall market capitalization of trillions of dollars, traditional market funds do not need to “enter in a big way”, let alone “run into the market”, even if there is only 1% of the basic allocation, it is a huge amount of positive capital inflow. According to the data, from June to August 2023 alone, a number of asset management institutions, including leading platforms such as BlackRock, have submitted 11 applications for Bitcoin spot ETFs, taking the lead in deploying Bitcoin spot ETF transactions.

ON OCTOBER 16, IT WAS REPORTED THAT THE U.S. SECURITIES AND EXCHANGE COMMISSION APPROVED THE ISHARES BITCOIN SPOT ETF. Although it was later confirmed that this was fake news and the listing application of the Bitcoin spot ETF is still under review by the US Securities and Exchange Commission, the market’s expectations for the listing of the ETF have been brought forward from November and May to the end of this year. As a result, cryptocurrencies, especially bitcoin, have seen a rapid rise in prices since mid-to-late October. On October 24, the trading price of Bitcoin briefly exceeded $35,000 per coin, which is also the first time since 2022.

Since mid-October, in view of the intensification of the Palestinian-Israeli conflict and the “steep” trend of U.S. Treasury yields, investors’ expectations for future economic growth to slow down and the Fed’s interest rate decline have risen, and the investment logic has also shifted from risk-off trading to multi-asset allocation. The outflow of some funds from long-term U.S. bonds and the increase in holdings of assets such as bitcoin also contributed to the strong rally in the crypto market. In addition, the fourth halving in the history of Bitcoin is coming, and the number of new bitcoins recorded on the blockchain will be reduced by 50%, which has also affected the trading mentality of investors to a certain extent, driving the price of bitcoin transactions in this round to rise.

On the whole, this round of strong gains in the bitcoin market is the result of the repricing of global assets and the seasonal pattern of the crypto market after the expected approval of bitcoin spot ETFs and the sharp rise in U.S. Treasury yields. The nature of this wave is not an occasional single event-driven, but a structural market that will continue for a long time.

With the end of the Fed’s interest rate hike cycle, the digital transformation of the global economy continues to advance, and a new round of industrial expansion cycle has begun to brew. Under the influence of factors such as the rising expectation of the approval of Bitcoin spot ETFs and the “steep” yield of U.S. Treasury bonds, the cryptocurrency market is expected to start a new round of bull market. However, with the outbreak of the Palestinian-Israeli conflict and the increase in global economic uncertainties, the market wait-and-see sentiment is still high, and investors should pay close attention to market trends and reasonably plan their investment strategies and directions.

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