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
CORE STRATEGY: REMAINING TACTICALLY CAUTIOUS, TGA RUNDOWN + EARLY JAN FLOWS COULD PRODUCE NEEDED SPARK In our view, this cycle is far from over. However, until bonds find a bottom and the USD peaks, it’s prudent for more tactically-minded crypto investors to remain nimble and ready to capitalize on opportunities once a trend reversal is confirmed. While this could happen as early as next week due to early-January inflows, additional...
CORE STRATEGY: FOCUS ON MAJORS, KEEP HEAD ON SWIVEL UNTIL BONDS/DXY RELENT We think it's right to expect a bounce into year-end, potentially starting tomorrow if PCE data comes in soft. In our view, this cycle is far from over, but until bonds find a bottom and the USD tops, it’s likely best for the more tactical investor to stay nimble and prepared for opportunities upon confirmation of this trend...
CORE STRATEGY Our base case assumes that the macro environment will remain accommodative for crypto through year-end. However, in light of recent market action, we remain alert for signs of a local top (not a cycle top). That said, it is difficult to justify a risk-averse stance at this stage and think it is right to lean into this altcoin rally. Source: TradingView, Fundstrat Source: TradingView, Fundstrat STRONG DOLLAR +...
Today's employment numbers broadly met investor expectations, placating a nervous market. Risk assets rallied, aligning with our view that yesterday's de-risking would not persist through today. Yields continued their downward trajectory, and Fed funds futures also declined, reflecting the market's adherence to the Fed's dovish messaging. Yields Falling: Source: TradingView Fed Funds Futures Showing More Cuts: Source: TradingView Oil prices nearing YTD lows likely assisted in alleviating near-term concerns about...
