On the Spot: When Doves Fly

Market run-through

Just when you thought it was safe to relax and think about turkey and the upcoming festive season, the US Federal Reserve came along. It delivered a massive surprise by coming out and giving doves encouragement to fly. The markets needed no encouragement to jump on the back of Jerome Powell’s soothing script bonds, and the dollar dropped sharply whilst equities took off as if under a wet sail. Ironically, as bond yields fall and shares rally, everyone feels just that little bit better off, and guess what? Financial conditions have suddenly eased. With employment still holding up and core inflation still double the Fed’s target, it begs the question of whether the Fed has seen something happening that the market hasn’t cottoned onto yet, but maybe I’m just a Grinch! Indeed, on this side of the pond, the ECB and the BoE were not nearly so full of joy, and those expecting a rapid series of early cuts in the UK are going to be disappointed as the vote split on the MPC showed there are still members looking for further hikes which should continue to support the pound.

The week before Christmas is always a thin week in terms of volume, and expect no different this week. Although it is nearly a whole trading week, the lack of liquidity will lead to prices moving more erratically than usual, and we advise you to execute any trades you need to do as early in the week as possible. The data docket is relatively thin, with the Fed’s favoured measure of inflation, personal consumer expenditure, being the highlight when it is released on Friday, and the UK sees the last inflation data for the year published on Wednesday.
We won’t be producing any commentary next week, so all that remains is for me to wish you all a great season of festivities!

Richard Matthews, Head of FX and Payment Partnerships

Behind the desk

Historical data suggests that as the world prepares for the festivities of Christmas, the crypto market also experiences its seasonal jumps. Traditional markets normally close, offering crypto a unique opportunity to operate independently. However, just a few days away from Christmas, despite the anticipation and excitement, the crypto market seems to have missed the memo, with retracements all around. Both BTC and ETH were down 5%, bringing the market close to the lows from the week prior. Although there appears to be a stall in momentum at the moment, it should not be mistaken for running out of gas. Crypto, which outperformed equities in October and November, has been underperforming in the last few weeks. Nevertheless, there is still much optimism in the market as we look ahead to the new year, with significant crypto-specific news, including a BTC spot ETF and the approaching halving.

In the ongoing chess match between the crypto sector and the top U.S. markets regulator, the SEC, which has reportedly labelled most crypto tokens as securities, there is more news. The Securities and Exchange Commission has denied a petition by Coinbase Global, seeking new rules from the agency for the digital asset sector. This showcases another firm stance by the SEC, which has sued several crypto companies for not registering their crypto tokens as securities.

As we look to end the year on a high note, ONE OTC desk still sees high volumes in BTC, ETH, and stable coin transactions. Interestingly, the majority of BTC trades have been on the buy side. It’s hard to predict what will happen in the crypto world in 2024, but the overall sentiment appears to be one of long-term holding for crypto. There has been a massive increase in coins being moved from exchanges and increased buy pressure over the last few months. Perhaps the only prediction for 2024 that we can confidently make is the approval of a spot Bitcoin ETF. With some of the biggest players in the money management game submitting proposals, there is much confidence in the approval. The legitimacy that such products would bring to Bitcoin in the eyes of the sceptics would uplift crypto significantly. There will be greater demand for transparency and more conversations surrounding the role cryptoassets can play in the payments space. Jamie Dimon, JPMorgan Chase CEO, recently stated, ‘I’ve always been deeply opposed to crypto, Bitcoin, etc.’ Maybe 2024 may give him a fresh perspective.

A very Merry Christmas to ONE and All!

Alex-Desmond Brathwaite, Senior Trader

Chart of the week

It’s been rather an eventful year for financial markets, and last week proved no exception, with the FOMC delivering a surprisingly dovish final decision of 2023, dousing any last expectations of further tightening being delivered, while also pencilling in three 25bp rate cuts for next year, effectively signalling (along with the latest economic forecasts) to markets that policymakers believe a ‘soft landing’ is almost assured, with disinflation set to continue, and growth seen remaining resilient. Unsurprisingly, markets have rapidly leapt onto this dovish guidance, sending the S&P to a sixth straight weekly gain, and the 10-year Treasury yield back below 4% for the first time since the summer. Perhaps remarkably, as 2023 wraps up, and despite all that has happened this year, the world’s most important rate is set to end the year just 4bp above where it started it – though it’s been quite a rollercoaster ride to get to this point!

Michael Brown, Market Analyst at Pepperstone

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