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SEPTEMBER 15, 2023

POTENTIAL SHORT SQUEEZE

Although Bitcoin had initially dipped below crucial support at $25,000, it has since risen over 6%, currently trading near $26,600; and as it continues to rally higher, the cryptocurrency has triggered a ripple effect on alternative cryptocurrencies like solana’s SOL as these types of altcoins, which had recently been heavily shorted, now face the possibility of leverage liquidations while also experiencing significant price surges. The release of positive China retail sales and factory output data was the reason behind the resignation risk appetite in financial markets, creating favorable conditions for further price gains in leading cryptocurrencies. Consequently, alternative cryptocurrencies such as XRP, Ether (ETH), SOL, Tron’s TRX, and Dogecoin (DOGE) are all following bitcoin’s upward trajectory. Let’s remember that just a few days ago, traders were selling off these tokens in anticipation of FTX potentially selling assets from its substantial holdings. This led to an over 8% decline in SOL after court documents revealed FTX’s solana holdings valued at $1.6 billion. However, as mentioned previously, the recent recovery has put altcoin bears at risk of liquidation on their leveraged bearish positions in SOL and other tokens, and the forced liquidation of these shorts is likely to introduce additional upward pressure on SOL’s price, resulting in a rally driven by short squeezes. Moreover, the increasing open interest, currently at a one-month high of $338 million, in active perpetual futures tied to SOL suggests a rise in bearish bets.

MODEST INCREASE

Last week, the number of Americans filing for unemployment benefits saw a modest increase after reaching a seven-month low the previous week. Despite the Federal Reserve’s efforts to cool down the economy, jobless claims rose to 220,000 for the week ending September 9th. Nevertheless, on a positive note, the four-week moving average, a less volatile measure, dropped to 224,500, indicating some stability in the job market. In fact, U.S. employers added 187,000 jobs in August, showcasing a healthy labor market. Furthermore, although the unemployment rate ticked up to 3.8 percent, it still remains low compared to historical levels. Moreover, it is worth noting that throughout the year, the U.S. economy has been consistently adding an average of 236,000 jobs per month, demonstrating strong growth. In addition, despite a slight decrease in job openings in July, they remain at unusually high levels compared to pre-pandemic times.

ONE MORE HIKE EXPEXTED

Based on the findings of a recent survey conducted by Bloomberg News, economists are predicting that the Federal Reserve will implement one more interest-rate hike before the end of the year, driven by the overall strength of the U.S. economy. The survey highlights that policymakers are likely to maintain interest rates at the current level of 5.25% to 5.5% during the September meeting, extending this status quo until May of the following year. While economists do not anticipate a final rate increase, they do expect the committee to include an additional rate hike projection in their economic forecasts. This upcoming meeting will be heavily influenced by the robust performance of the economy, characterized by predictions of higher economic growth and a marginally increased unemployment rate. Furthermore, it is expected that the committee’s projections for 2026 will reveal rates slightly above the long-term average, alongside expectations of sustained inflation levels.

CAUTION DESPITE RISE

According to Bank of America (BofA), equity funds have experienced the largest weekly inflow in 18 months, suggesting growing investor confidence in a positive outlook for the U.S. economy. Nevertheless, BofA strategist Michael Hartnett disagrees and warns of a bearish market sentiment due to the significant inflows into money-market funds this year. Despite global stocks attracting $25.3 billion in the past week, Hartnett believes that cash and Treasuries have been the primary beneficiaries and predicts a potential downturn. In addition, while U.S. equities have performed well this year, Hartnett suggests that the market may soon face selling pressure as the impact of tighter monetary policies becomes evident.

INTERNATIONAL NEWS

European Central Bank President, Christine Lagarde, has stated that policymakers are not currently considering interest-rate cuts. However, investors are already anticipating them, creating a disconnect between the two sides. Despite Lagarde’s message, the market has priced in potential rate cuts for 2024, potentially starting in June. This poses a communication challenge for the ECB as they try to align market expectations with their goals. Analysts believe that further rate hikes would worsen the economic situation, leading to expectations of rate cuts next year. However, uncertainties remain and European price pressures may persist longer than expected.

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