Risk Sentiment is weak but…

Thoughts of the Day

Cryptocurrencies, including Bitcoin (BTC), have shown strength despite recent weakness in risk assets, with BTC up more than 80% since the year started. The upcoming Bitcoin halving (set in Apr 2024) is possibly one of the reasons driving this because there were bull runs in BTC after all the 3 previous halving events. We can never be sure, but a cut in supply can only help prices in the longer run.

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Week Ahead

Monday: –

Tuesday: The UK unemployment rate is expected to remain at 4.3% in August while the employment change is expected to show the economy lost -198k jobs in July compared to -207k jobs lost in June. Purchasing Managers Index data will be released for the Euro area, UK and the US.

Wednesday: The Australian monthly consumer price index indicator is expected to show that prices rose +5.3% Year-on-Year in September, slightly higher than the +5.2% in March. The Bank of Canada is expected to keep interest rates unchanged at 5% in its monetary policy meeting. Federal Reserve Chair Powell is due to deliver opening remarks at the Moynihan Lecture in Social Science and Public Policy.

Thursday: The ECB is expected to maintain interest rates at 4.5% in its monetary policy decision. Its message on likely policy steps ahead will be closely monitored.

Friday: The US PCE Price Index, the Fed’s preferred measure of inflation, for September is expected to show that prices rose +3.4% YoY, slightly lesser than +3.5% previous. The core index is expected to show slower growth of +3.7%, compared to +3.9% in August. The US University of Michigan data is expected to show a revised print of 63 for consumer sentiment (compared to 68.1 previously) and +3.8% for the inflation expectations component (compared to +3.2% previously).

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What Happened Yesterday

Market Movements as of New York Close 20 Oct 23 (22 Oct for Crypto)
  • Fedspeak:
    Mester (2024 voter, known hawk):
    “Fed is at or near peak of rate hike cycle. If sustained, higher bond yields will help moderate economic activity. The Fed needs to be nimble with monetary policy right now.”
    Harker (current voter, known centrist): “This is a time where doing nothing is doing something, and, in fact, I’d argue that it equates to doing quite a lot. Holding the policy rate steady is the prudent position to take. Now, as for when I anticipate rates coming back down? That is a question to which I don’t yet have an answer.”
    (Mester hawkish before, now talking about peak rates and acknowledging higher bond yields. Harker is the same about keeping interest rates high.)
  • The US Treasury Yield curve inversion narrowed to 0.14% as the US 2-year bond yield fell -0.07% to 5.07% while the US 10-year bond yield fell -0.05% to 4.93%.
  • The US stock futures traded within a small range through the Asian and London trading sessions on a day with no news.
  • The US stock market opened slightly lower from Thursday. It then traded lower through the New York session as bond yields remained at elevated levels. Consequently, the S&P 500 closed the day lower at -1.26% (high: -0.03%, low: -1.28%), the Dow slipped -0.86% (high: +0.03%, low: -0.89%) while the Nasdaq fell -1.50% (high: -0.01%, low: -1.56%).
  • The crypto market traded higher over the weekend as hopes of a Bitcoin ETF continue to drive up bullish sentiment. Bitcoin is up +4.4% while Ether is up +6.2%.
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Headlines & Market Impact

Alibaba, Tencent among investors in China’s rival to OpenAI with $341 million funding

Notable Snippet: Chinese technology giants including Alibaba and Tencent are among backers of Zhipu, the company said on Friday, an artificial intelligence start-up the country is hoping can be an answer to American firm OpenAI.

Zhipu has raised more than 2.5 billion Chinese yuan ($341 million) this year, the company said in a statement.

Sequoia and Hillhouse are among the high-profile venture backers, and smartphone maker Xiaomi, Alibaba and Tencent are some of the corporate investors.

Zhipu is one of China’s promising start-ups creating AI models trained on huge amounts of data that can underpin various applications.

China sees AI as a key technology that it wants to develop, especially since it could help economic output. The world’s second-largest economy plans to increase its computing power by 50% by 2025, which would help continue to develop AI applications.

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Coinbase is ‘confident’ a U.S. bitcoin ETF will be approved after SEC’s court defeat

Notable Snippet: Coinbase is confident that a U.S. bitcoin exchange-traded fund will be approved by the U.S. Securities and Exchange Commission, the company’s chief legal officer, Paul Grewal, told CNBC.

“I’m quite hopeful that these [ETF] applications will be granted, if only because they should be granted under the law,” Grewal said in an interview with CNBC’s Arjun Kharpal.

The SEC was recently dealt a major court setback when a judge ruled that the regulator had no basis to deny crypto-focused asset manager Grayscale’s bid to turn its huge GBTC bitcoin fund into an ETF.

The SEC last week declined to appeal that ruling by a key deadline, likely paving the way for a bitcoin-related ETF to be approved in the coming months.

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Russia’s Gazprom to supply extra gas to Hungary and China this year

Notable Snippet: Russia’s Gazprom will supply extra gas to Hungary through the coming winter and will also provide China with an additional 600 million cubic metres this year on top of contractual obligations, TASS news agency quoted its boss Alexei Miller as saying.

Russian President Vladimir Putin met the leaders of both countries during a trip to China last week and Miller was among the business chiefs who accompanied him on the trip.

Gazprom is looking to compensate for the loss of most of its markets in Europe since the start of Russia’s war in Ukraine, largely due to explosions that severely damaged its Nord Stream pipelines under the Baltic Sea last year. Investigations have yet to establish who was responsible.

The EU as a whole has sharply reduced its dependence on Russian energy in response to the Ukraine war but TASS quoted Gazprom’s Miller as saying in a TV interview that additional gas supplies to Hungary this year amounted to 1.3 billion cubic metres.

“We regularly supply additional volumes to the Chinese market. Moreover, we have been doing this for several years now. This year, I think (the extra amount) will be 600 million cubic metres of gas,” he was quoted as saying.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord