Weak US core PCE (and European CPI) data capped a risk-friendly week, with the US yield curve continuing its bullish steepness, while US and Chinese stock markets both hovered at cycle highs. On a 3-month moving average basis, annualized core inflation for CPI and PCE has fallen back to around 2%, moving towards the Fed's 2% long-term target, allowing the Fed to continue to focus on its tasks in the job market. After the CPI was released, several investment banks reiterated their forecasts for a 50 basis point rate cut in December, while interest rate futures pricing in a 50 basis point rate cut in November returned to around 50%.

On the other hand, US consumer confidence jumped to a 5-month high on the back of the Fed's aggressive easing and falling oil prices. Global beta trading has picked up, with Chinese and Hong Kong stocks having their best week in years (the CSI 300 rose 16%), thanks to China's "heavy" stimulus policy, and well-known investor David Tepper calling on market investors to "buy everything" China-related assets after the People's Bank of China announced its easing policy.

For example, iron ore has risen 20% since the end of September as China eased restrictions on home purchases, while a rapid surge in market trading activity also caused the Shanghai Stock Exchange's system to fail, while Chinese ETFs saw their highest daily inflows since 2021.

While the US and Chinese markets are strong, Japanese stocks are facing a new round of volatility following the unexpected election win by Shigeru Ishida. The former defense minister has publicly opposed "Abenomics" in the past and supports the normalization of the Bank of Japan's policy. Japanese stock futures fell 6% and the yen rose to 142 as investors worried about further rate hikes by the Bank of Japan and a more aggressive geopolitical stance by the new prime minister. Next, the Bank of Japan's speech this week will be the focus of the market.

Back in the US, this week will see a lot of important economic data, including JOLTS, ISM manufacturing and services indexes, and of course the non-farm payrolls report. In addition, there are multiple Fed officials speaking this week, and the market does not think that officials will try to "stir up the market" despite the fact that the US financial situation has eased to a cycle high. Powell will speak on the US economic outlook at the National Association for Business Economics meeting on Monday, and the market expects that his speech will not be far from the last FOMC meeting, especially considering that the recent inflation data trend is in his favor.

In addition, the United States will hold a televised debate for vice presidential candidates on Tuesday evening, but the market expects this to have little impact on the election, as current polls show a very tight race. China is on holiday during the Golden Week, so macro and cryptocurrency trading activity is expected to be relatively flat during the Asian session this week.

In terms of cryptocurrencies, BTC has performed well against the backdrop of loose liquidity, with strong economic growth, stable corporate earnings, and dovish central banks laying a solid foundation for BTC's rebound in the fourth quarter. Although ETF flows have been disappointing since July (ETH ETF outflows of $610 million and BTC ETF outflows of $330 million), ETH has performed well in the recent rebound, and altcoins have also returned strongly.

As cryptocurrencies remain highly correlated with macro assets, especially with the SPX index, we believe the friendly macro backdrop will continue to provide strong support for crypto prices in the fourth quarter. In addition, with Kamala Harris’s camp “endorsing” cryptocurrencies on the campaign trail, we remain bullish on near-term price action. As investors shift into “buy on dips” mode, we expect targeted short put option strategies to be popular. Wish you all good trading and a happy holiday!

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