SENTIMENT SHIFT

There seems to have been a switch in investor sentiment as Ethereum-based investment products have set a record high of $2.2 billion in net inflows, surpassing the previous peak in 2021. This surge, fueled by a substantial $466.5 million flowing into Ethereum products in one week, largely by U.S.-based exchange-traded funds (ETFs), marks a notable shift towards Ethereum over Bitcoin. The increasing interest in Ethereum can be attributed to its staking yield potential and potential U.S. regulatory approval. In contrast, Bitcoin faced challenges with a 7% drop and decline in dominance over the past two weeks, amidst a potential “alt-season” where altcoins like Ethereum and XRP outperformed. Amidst this dynamic market environment, digital asset funds also experienced significant inflows, with XRP funds notably recording a $95 million weekly inflow and a 69% price surge.

HINTING CUTS

In regards to what may happen at the upcoming Federal Reserve meeting, Fed Governor Christopher Waller has expressed his inclination towards supporting a rate cut. Waller’s decision is driven by concerns regarding recent inflation trends, with data indicating a possible slowdown in progress. However, it is important to remark that while Waller remains cautiously optimistic based on current economic information and inflation forecasts, he highlighted the importance of upcoming data surprises in potentially altering his stance. In addition, New York Fed President John Williams has echoed similar sentiments regarding inflation’s downward trajectory and the potential for policy adjustments towards a more neutral setting. Ultimately, although additional economic data is still pending for a clearer assessment of potential rate cuts, many investors are anticipating another rate cut based on the hints provided by these key Fed officials.

BANKING DILEMMA

Banks are increasing interest rates and introducing new fees on credit card holders in anticipation of a regulation aimed to limit late fees, a rule that experts now doubt will ever come into effect. This move has led to a significant rise in costs for consumers, with some retail card rates climbing to almost 36%. Synchrony and Bread Financial are among the banks that have raised annual percentage rates by 3 to 5 percentage points and imposed monthly statement fees in response. The potential regulatory changes have caused a spike in borrowing costs, particularly affecting individuals with lower credit scores who rely on store cards. While the proposed measure to cap late fees at $8 per incident was intended to benefit consumers, banks argue that it could shift costs onto those who pay on time. As a result, banks are taking proactive steps to safeguard their profitability amid the regulatory uncertainty, ultimately impacting cardholders with increased charges and fees.

SHORT- SELLERS RETREAT

Despite some experts being cautious of the current bullish trend in the stock market, the S&P 500 index continues to hit new highs, and as a result short-sellers are feeling the heat and are being forced to close their positions. Citigroup Inc. analysts are predicting a stellar year for the index, and have highlighted that the allure remains strong driven by technology stocks and a general preference for American assets. In contrast, Euro Stoxx 50 futures are witnessing a bearish trend, leading to increased ETF outflows as investors steer clear of European stocks due to slow economic growth and political uncertainties in France and Germany. Despite a prevalent short position on European equities, there are early indicators of investors cautiously reentering the market through DAX and FTSE 100 futures. However, the current political landscape in France may dampen enthusiasm for European equities among investors hesitant about their European holdings.

DOLLAR DOMINANCE

In the global currency market, the U.S. dollar is currently experiencing a surge in value as both the euro and the Chinese yuan face challenges. Political instability in France is contributing to the weakening of the euro, while trade tensions and a slowing economy are putting pressure on the yuan. These factors are causing investors to turn to the dollar as a safe haven currency, leading to its higher valuation. Additionally, anticipation of a potential interest rate increase in Japan is bolstering the dollar against the yen. Moreover, market participants are closely monitoring forthcoming U.S. employment data for insights into potential Federal Reserve rate adjustments, and are also awaiting the possible implications of President-elect Donald Trump’s tariff threats.