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OCTOBER 30, 2023

RISE IN ACTIVITY

Bitcoin’s recent move above $35,000 has not only attracted attention from the general public but also stirred up activity amongst wealthy investors known as whales. These whales, with their substantial capital and capacity to influence market trends, have been actively participating in the cryptocurrency’s journey. Blockchain analytics firm IntoTheBlock has reported a notable surge in the number of high-value transactions on the Bitcoin blockchain, where at least $100,000 worth of BTC has been involved. Last week alone, this figure skyrocketed to a year-to-date peak of 23,400 transactions, indicating significant movement in the market. Let’s remember that last week Bitcoin surpassed the $35,000 mark, reaching its highest point since May 2022, and although the price has remained steady at around $34,000, it has gained an impressive 107% year-to-date, with a 27% surge this month. The filing of Bitcoin spot ETF applications has apparently whetted the appetite of both institutional investors and whales as the number of transactions exceeding $100,000 surged in late June after Blackrock’s ETF filing and has now exceeded that level, coinciding with Bitcoin reaching new yearly highs. Moreover, alongside the whales, retail investors have also become more active, as shown by the increasing, as according to Deutsche Digital Assets’ data, the on-chain activity index of small entities, which provides insights into retail investor activity, reached a new year-to-date high of 1.5 last week.

SHUTDOWN PREDICTION ADJUSTED

Goldman Sachs has adjusted its prediction regarding a potentian U.S. government shutdown as although the financial institution had previously predicted a shutdown lasting 2-3 weeks towards the end of this year, there is now a believe that this scenario is much less likely to occur. This change is attributed to emerging geopolitical risks, such as the conflict in Israel and the recent U.S. air strikes in Syria, which have made Congress less inclined to allow a shutdown due to its impact on the military. Additionally, the recent election of House Speaker Mike Johnson has further diminished the likelihood of a government shutdown. Nevertheless, it is worth noting that Goldman Sachs still acknowledges a modest risk of a shutdown in early 2024. This is due to the expected temporary extension of the spending bill, which is not anticipated to address the underlying policy disagreements. Moreover, as the government continues to rely on short-term extensions, the likelihood of Congress reaching a consensus on full-year spending bills decreases, hence, increasing the potential for a shutdown in early 2024.

RECESSION LOOMING?

The recent performance of the economy and stock market has been puzzling as although we witnessed an impressive GDP growth in the third quarter, we also saw a significant stock market sell-off and subsequent correction. This raises the crucial question of whether the bear market has come to an end, and whether a recession is looming on the horizon. Initially, concerns were centered around regional bank collapses potentially triggering a recession, but the recent strong GDP numbers have debunked these worries. As a result, bond yields have risen and stocks have suffered, yet the surprisingly positive data challenges the notion of an imminent recession. Nevertheless, it is crucial to consider the impact of dominant tech stocks like Apple and Amazon, as an examination of the equal-weighted S&P 500 reveals that the market is down for the year and lags behind other benchmarks both within and outside the U S. This suggests that these dominant stocks are operating under a different economic paradigm. Also, adding to the uncertainty is the discrepancy between analysts’ price targets for the S&P 500 and the current market prices, indicating a disconnect between market sentiment and underlying fundamentals. Furthermore, struggling transport stocks have also contributed to the bearish sentiment. Moreover, looking ahead, the Federal Reserve is unlikely to raise interest rates, given the need to manage inflation and the existence of sectors experiencing inflation that could impact consumer spending and satisfaction.

INTERNATIONAL NEWS

Sterling has remained stable against the U.S. dollar and the euro as traders awaited the upcoming Bank of England (BoE) meeting. Expectations are that the rates will be kept unchanged, and market focus will shift towards the economic outlook following recent weak U.K. data. The British pound has faced downward pressure due to declining risk appetite in global markets and instability in the Middle East. Deteriorating economic indicators, such as last week’s employment data, have reinforced the expectation of unchanged rates by the BoE. Moreover, the approval of home loans in September was at its lowest level since January, indicating a sluggish property market. Currency analysts believe that the BoE may be nearing the end of its rate tightening cycle and anticipate a shift towards a more dovish stance in the future. The recent data releases suggest weak economic activity, which could lead to downgraded growth projections by the BoE. Consequently, yields on two-year British government bonds fell, and expectations of a rate hike on Thursday are minimal, with economists predicting that rates will remain at 5.25%.

KEY EVENTS HAPPENING THIS WEEK

Tuesday: Employment cost index third quarter report, S&P Case-Shiller home price index (20 cities) report for August, Consumer confidence report for October, and earnings reports from Pfizer, Jetblue, and Advanced Micro Devices.

Wednesday: ADP employment, S&P U.S. manufacturing PMI, and ISM manufacturing reports for October, Job openings report for September, Federal Reserve decision on interest rates, and Fed Chairman Powell press conference, and earnings reports from Kraft Heinz, Yum Brands, Qualcomm, and Airbnb.

Thursday: Initial jobless claims for week ending on October 28, U.S. productivity and U.S. unit-labor costs third quarter reports, and Factory orders report for September, and earnings reports from Starbucks, Eli Lilly, Moderna, Apple, and Paramount Global.

Friday: U.S. nonfarm payrolls, U.S. unemployment rate, S&P U.S. services PMI and ISM services reports for October, and earnings reports from Restaurant Brands.

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