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OCTOBER 31, 2023


Crypto giant Grayscale has submitted an application for an Ethereum Exchange-Traded Fund (ETF) in the U.S. This move marks the beginning of a 240-day period during which the Securities and Exchange Commission (SEC) must respond. The timing of this application also coincides with the recent surge in cryptocurrency prices, as investors anticipate SEC decisions on Bitcoin ETF applications. It is worth noting that the SEC has already approved futures ETFs for Bitcoin and Ethereum, and while Grayscale has faced previous rejections from the SEC in its bid to launch a Bitcoin ETF, recent court rulings have boosted hopes for approval. In addition, Grayscale has also expressed its commitment to converting all its crypto investment products into ETFs. Moreover, many industry insiders believe the SEC is likely to grant approval in early January, potentially aligning with the deadline for the ProShares’ Bitcoin ETF, which is also under review by the SEC. The approval process involves multiple stages, including listings on exchanges and ETF issuance by individual companies, and if approved, these ETFs could inject more investment and liquidity into the crypto markets.


Goldman Sachs’ chief global equity strategist, Peter Oppenheimer, has expressed doubts regarding the potential for U.S. stocks to replicate the significant outperformance they experienced in the past decade within the next 10 years. Oppenheimer cites several factors to support his doubts, including the higher concentration risk prevalent in the U.S. equity market, its larger share of the economy compared to other major markets, and concerns surrounding the impact of the Federal Reserve’s decision to maintain higher interest rates. Consequently, in light of these concerns, Oppenheimer advises investors to diversify their portfolios and focus on investing in exceptional companies regardless of their geographical location. Nevertheless, it is important to note that not all strategies agree with Oppenheimer’s viewpoint of suggesting a more cautious stance on U.S. stocks, as other strategists at Goldman Sachs, such as David Kostin and Lily Calcagnini, remain optimistic, anticipating that U.S. stocks will outperform their global counterparts in the long run as they believe that if company managements continue to improve their return on equity, U.S. stocks can deliver strong returns despite high valuations.


In an effort to tackle inflation, the Federal Reserve has been tightening financial conditions, but its impact on corporate America has been limited thus far. Surprisingly, bond markets are not demanding higher yields for risk, borrowing remains robust, and credit quality is improving. This is remarkable considering the aggressive pace and high level at which interest rates have been raised by the Fed. Now, this raises the question of whether the interest rates have been raised sufficiently or for an adequate duration. As the effects of rate hikes take time to manifest in the real economy, the Fed closely monitors financial conditions, and while Treasury yields have been affected, equity and oil prices have remained resilient. There is uncertainty as to whether the Fed needs to increase rates further or allow current levels more time to take effect. Moreover, at the upcoming meeting, the Fed is expected to maintain rates at their current level, however, if rates are kept steady for an extended period, it may lead investors to believe that no more rate hikes will occur, which could further ease financial conditions and stimulate growth. Nonetheless, despite this, the strength of the economy and the resilience of American consumers continue to support corporate earnings and credit quality as credit spreads remain tight due to low defaults and healthy balance sheets. Both investment-grade borrowing and high-yield sales have been strong, and there have been notable improvements in corporate balance sheets. Overall, the impact of monetary policy tightening and inflation on consumers and company balance sheets has been delayed, resulting in a postponement of the expected growth slowdown.


The commercial real estate lending market is experiencing a significant decline, resulting in potential defaults on loans and a sharp decrease in construction activity. This downward trend began in the first half of 2022 due to interest rate hikes by the Federal Reserve and concerns about a looming recession. In addition, the recent surge in Treasury bond yields has further deterred lenders from extending new loans. As a result, commercial property loans held by banks and commercial mortgage-backed securities have decreased, while the growth of the commercial property debt market has slowed significantly. This downturn has adversely affected office owners, apartment building developers, and warehouse investors. Additionally, private debt funds are facing challenges in raising capital and refinancing existing low-interest loans, and although loans are still obtainable, the lending conditions have become more restrictive and costly. The decrease in lending is driven by diminished demand from investors who are deterred by high interest rates and lenders who are hesitant to engage in new deals. Moreover, construction loans have significantly declined, leading to a projected 17% annual decrease in commercial property construction starts. Consequently, various projects are facing delays and modifications due to financing issues, and while developers are working to secure alternate funding sources, they are still confronted with considerable difficulties.


According to the latest report from Eurostat, the statistical office of the European Union, inflation in the Eurozone has reached its lowest level in over two years as consumer prices only rose by 2.9% in October, marking a significant drop from the previous month’s 4.3%. This aligns with the European Central Bank’s objective of reducing inflation and promoting price stability, however, it is important to highlight that the Eurozone is currently facing obstacles such as a contracting economy and rising interest rates, which have contributed to a decline in gross domestic product during the third quarter. Nonetheless, despite these challenges, market expectations suggest that the ECB’s deposit rate will remain unchanged, as it continues its mission to control inflation and support economic growth. Moreover, while certain countries in the Eurozone are experiencing economic downturns, such as Germany, which recorded negative growth in the third quarter of this year, Greece, which has experienced a long period of economic turmoil and is still dealing with the consequences of its debt crisis, and France and Spain, which have encountered challenges due to high levels of unemployment and sluggish economic performance, there are also signs of growth in specific sectors. Furthermore, as inflation subsides and demand for exports strengthens, the Eurozone economy is expected to gradually regain momentum over the coming years.

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