1 min läsningExpectations for rate cuts keep increasing
Further to last week’s market update, the case for an additional 75 basis points of rate cuts this year appears to be strengthening, where we expect 25bp in October and a further 50bp in December. The recently released CPI data highlighted only a modest impact from tariffs, coming in below expectations at 0.3% versus the 0.4% consensus for the month-on-month measure. With the ongoing US government shutdown causing a near-complete halt in macroeconomic data releases, investors are scrambling for any meaningful signals. As a result, they are likely placing undue emphasis on this latest inflation print.
The key missing piece in the economic picture remains US employment data. With no resolution in sight to the shutdown, it’s still unclear when these figures will be published but are likely to miss expectations in our view. There was no meaningful progress in this week’s Senate session, where an 11th attempt to advance a House-passed continuing resolution to fund the government until November 21 fell short of the required 60 votes. The vote tally stood at roughly 50 in favour and 43 against, with seven abstentions, and no additional Democrats crossing the aisle to back the Republican-led proposal. Negotiations remain at a standstill: Republicans continue to insist that reopening the government must precede any discussion of policy issues such as healthcare subsidy extensions, while Democrats maintain that any funding resolution must include continued support for Affordable Care Act subsidies.
Flows in Bitcoin products stay solid
The shutdown has now entered its third week, and is likely heading into a fourth, with mounting disruption across federal operations. This ongoing impasse, combined with growing expectations of more accommodative monetary policy, is likely to provide support for digital assets, even if prices have yet to fully reflect it. Encouragingly, there are early signs that the worst may be behind us, with Bitcoin continuing to trend higher since the 17th October lows of around US$104K.
Sentiment across digital assets has been mixed this week, which we attribute to the lingering effects of the recent liquidity cascade and investors’ search for clearer macro direction. Many appear to be adopting a cautious, wait-and-see approach. The release of the CPI data has given markets some much-needed clarity, with prices trending upward in its wake. Fund flows have reflected this hesitancy, showing a mix of inflows and outflows throughout the week. So far, digital asset ETPs have recorded net inflows of US$573M, largely driven by investors seeking the relative safety of Bitcoin, which attracted US$528M. In contrast, Ethereum saw outflows of US$100M. Notably, there have been modest inflows into both 2x leveraged Bitcoin and Ethereum products, suggesting some conviction that the worst of the negative sentiment following the liquidity cascade may now be behind us.
