This week has been relatively quiet in terms of price movement, but the macroeconomic outlook is becoming clearer. The US labour market continues to show signs of a gradual slowdown, but it is crucial to understand that an economic slowdown is NOT a recession. Those who predicted a recession last year have seen their investments take a hit.
So far, over 90% of S&P 500 companies have reported their second quarter results. While only 59% exceeded analysts’ revenue estimates – below the ten-year average of 64% – a remarkable 78% delivered better-than-expected EPS, surpassing the ten-year average of 74%. This gap indicates that profit margins are improving, which indeed seems to be the case.
On Wednesday, the downward revision of the US NFP showed 818,000 fewer jobs than initially reported (~68,000 less per month), a significant 30% less than initially reported, showing both that the labour market is not as strong as expected and that market participants do not care too much about the revised number as the market did not move much (just try to imagine if every US NFP release was lower by 30% – ouch).
On the same day, the minutes of the last FOMC meeting were released, showing that while some members favoured a rate cut as early as July, the majority decided to wait until September.
As a result, Fed Funds Futures are now pricing in rate cuts more aggressively, with on average a 25 bps reduction anticipated at each meeting between now and December 2025. The projected year-end rate for 2024 is now 425-450 bps, and for 2025, it is 325-350 bps – 200bps below current levels.
As the US Democratic convention wraps up, odds are shifting back in favour of Donald Trump, which could generally be seen as bullish for crypto.
In crypto-specific news, ETH Spot ETFs have seen outflows for six consecutive days, with total AuM in ETH ETFs sitting at USD 7.2 billion, while BTC Spot ETFs have seen net inflows for six consecutive days, with total AuM at USD 55 billion. This is in line with bitcoin’s dominance over ETH, as ETH’s mempool remains empty while BTC’s mempool is stable. The lower fees for ETH are also a result of recent network improvements.
In derivatives, BTC’s 30-day ATM IV is unchanged week-over-week at 51%, while ETH saw a minor expansion from 58% to 62%. The ATM term structure remains in strong contango, with significant volatility expected around the November elections. The Forward Implied Volatility between 25 October 2024 and 8 November 2024 is 79% for BTC and 90% for ETH, with a positive call skew; markets are anticipating strong moves into the elections, using ETH as an altcoin proxy.
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