Caution in the Near-term Still Warranted, Q4 Setup Remains Compelling (Core Strategy Rebalance)
This Week’s Economic Data Skews Toward Hard-Landing
For this week’s note, we will begin by revisiting our market map for the near-term outlook on crypto. Over the past few months, the market has oscillated between expectations of a hard landing, soft landing, and no landing. However, since Powells’s speech at Jackson Hole, market outcomes have narrowed, leaving only the two scenarios furthest to the left—hard landing and soft landing. Both scenarios are cyclically favorable for crypto, though the hard landing carries short-term downside risk.
This week, we received a subpar ISM Manufacturing report. The ISM Manufacturing PMI came in at 47.2, lower than the expected 47.9, indicating a contractionary environment. The most disappointing subcomponent was the new orders figure, which posted 44.6, well below market expectations of 47.2.
This led the crypto market, along with broader risk assets, to shift toward hard landing pricing, as concerns about a potential Fed policy error grew among investors.
On Wednesday, the JOLTs report posted a weaker-than-expected number, showing approximately 7.7 million job openings, significantly below the forecasted 8.1 million.
Thursday’s ISM Services PMI, however, met expectations, coming in at 51.5,...Reports you may have missed
PBOC ONE-UPPING THE FED This week, China’s central bank initiated what we believe are the first steps in a broader effort to stimulate the economy, which is struggling to meet its annual growth target of around 5%. These new measures are aimed at reviving economic activity and restoring confidence, especially in the real estate and equity markets, both of which are facing significant challenges. The People’s Bank of China (PBOC)...
OUR VERDICT: POWELL NAILED IT Yesterday, Powell did exactly what risk assets wanted him to do—their actions were dovish, with a 50-bps cut and guidance for two more by year-end, but their economic commentary remained reassuring. Many bears point to this as hawkish, and since it's hawkish, it's implicitly bad for risk assets (including crypto). In our view, if Powell had taken a significantly more dovish stance than he did,...
INITIAL THESIS – SENATE MORE IMPORTANT THAN MANY RECOGNIZE This week, we witnessed what was the first – and potentially final – presidential debate between Kamala Harris and Donald Trump. Anticipation for this event was high, with the public initially favoring Trump, as reflected in prediction markets. This preference was largely attributed to Harris's lackluster debate track record. However, the dynamics shifted during the debate itself, with reactions in prediction...
LOWER VOLUMES PERSIST Earlier this week, we witnessed approximately $2B in open interest being unwound within a matter of hours—a significant forced deleveraging event for an otherwise uneventful Tuesday, lacking a clear catalyst. In our view, the selloff was largely technical and indicative of the negative seasonality we've been discussing recently. To backtrack, Monday and Tuesday followed a dovish Fed pivot at Jackson Hole, sparking a sharp rally in soft-landing...
