Market Picture

The cryptocurrency market is down 0.5% in 24 hours to $3.08 trillion. The market has paused after rallying since the end of last week. Ethereum and Litecoin have pulled back from recent highs, while XRP is stabilising. Bitcoin and Solana are hovering near recent highs and are getting ready to update them.

As a result, the sentiment index reached 90 for only the third time this year—it was only higher at the end of 2020. This sentiment confirms that traders are sticking to the four-year halving cycles. In 2020, price records attracted companies to buy the first currency in reserve to support market interest in equities. By 2024, even politicians seem to be scoring PR points by showing their commitment to Bitcoin.

Bitcoin is trading at nearly $92K. A break above the 13th’s highs of $93.3K would signal an entry into a growth extension with a target of $110K after a corrective pullback to 76.4% of the initial momentum. Such shallow corrections are typical of strong bull markets when buyers quickly return.

News Background

According to CoinShares, global crypto fund investments rose by $2.193 billion last week, following inflows of $1.978 billion the week before. Investments in Bitcoin rose by $1.481 billion, Ethereum by a significant $646 million, and Solana by $24 million. Investments in funds that allow bitcoin shorts rose sharply by $49 million. Investments in funds with multiple crypto assets fell by $19 million.

BCA Research noted that the value of one of the fractal analysis metrics signals a possible rise in Bitcoin above $200K in the current cycle.

Bernstein expects key catalysts in 2025 to push Bitcoin towards the $200K target level. These include the appointment of a new SEC chairman and treasury secretary, regulatory easing, progress on creating a US strategic bitcoin reserve, creating a powerhouse for BTC mining in the US, and creating a regulatory framework for stablecoins. Another driver will be coin purchases in ETFs, as well as by miners and companies such as MicroStrategy.

From the 11th to the 17th of November, MicroStrategy purchased an additional 51,780 BTC (~$4.6 billion) using proceeds from the issuance and sale of shares. The average purchase price was approximately $88,627. MicroStrategy now reserves 331,200 BTC at an average price of $49,874 per coin.

Record daily fees pushed Solana to a peak of over $245 in December 2021. The return of meme coin hype fuelled high network activity.

The Dollar Index is retreating from Thursday’s highs, moving against the logic of fundamental forces. This behaviour begs the question: either the Dollar Index has reached the limits of its range, or this is an extended shake-out of positions after a prolonged rally.

The DXY rallied to 106.99 last Thursday, almost repeating the October 2023 highs of 107.04. The recent highs were slightly above the April peak this year, making 107 a serious resistance area. There is a significant battle going on here in the dollar between the bulls and bears, the outcome of which could determine the trend for weeks or months to come.

The resistance is so significant that it goes against the major trends of recent days. At the end of last week, Fed Chairman Powell said that the central bank was in no hurry to cut interest rates. As a result, interest rate futures are already pricing in more than a 40% chance of no change, whereas there was no doubt at the beginning of October. The pullback in equity indices also clearly showed how much the markets took the central bank chief’s words to heart.

The authorisation of US missile strikes deep into Russia, and the retaliatory escalation of rhetoric also led to a pullback in defensive assets, helping gold and the yen, but not the dollar, which has not fallen below 1.05 in EURUSD terms. However, in the current geopolitical environment and amid expectations of tariff wars with the US, it isn’t easy to see the euro as a safe-haven.

In our view, EURUSD holding above 1.05 looks like a technical correction and a liquidity pick-up after a 6% fall since early October. As the odds of no change in US interest rates continue to rise, the dollar can build up potential that is still constrained by the local overbought condition of the US currency.

However, the ball is now in Europe’s court. On Wednesday, it is worth listening to Lagarde and the ECB’s biannual assessment of financial stability. On Friday, it is also worth paying attention to another speech by Lagarde entitled ‘Out of the Comfort Zone…’ and the preliminary PMI estimates for November, which have often been the driving force behind the euro’s movement and could now indicate either a light at the end of the tunnel or a further plunge.

Markets

Geopolitics rattled markets otherwise on track for an uninspired trading session. Russian president Putin signed off a revised nuclear doctrine, expanding the conditions for the use of atomic weapons. Russia could now retaliate in case of a (conventional) attack on its soil. Making good on the pledge made by Putin back in September, Russia will view aggression against itself or its allies by a non-nuclear state backed by a nuclear power as a joint attack. The revision doesn’t come out of the blue: it follows the outgoing US Biden administration giving Ukraine green light for the limited use of American-made long-range ATACMS missiles. This was in turn a response to North Korea’s agreement to deploy its forces in support of Russia and to increased Russian missile and drone attacks on Ukraine.

Less than an hour after the updated doctrine, reports rolled in of Ukraine conducting such a first ATACMS strike. Russian minister of foreign affairs called it “a signal of escalation”. Risk-off rolled over markets. Both US Treasuries and German bunds rallied, the former outperforming. Both trade well off the intraday highs, though. US yields drop between 3.4-4.7 bps. German yields lose 2.5-3.4 bps across the curve compared to initial losses of <10 bps. European stocks take a 1.7% hit (EuroStoxx50) while Wall Street opens about 0.50% lower.

The Japanese yen and Swiss franc take the lead on the G10 currency scoreboard. USD/JPY fills bids around 153.6. JPY gains against the euro are slightly bigger, bringing down the EUR/JPY pair to its 50dMA around 162.4. EUR/CHF came close to the 0.93 but without really testing the big figure. It is nevertheless on track for the lowest close since the August market meltdown.

Natural gas prices (Dutch TTF) temporarily jumped to a new one-year high before easing a bit later in the session. Gold prices printed the first back-to-back rise since end-October. The precious metal is currently being sold for over $2635 per ounce. While geopolitics usually have a limited shelf-life, the topic may continue to draw market attention during the economic, political and monetary vacuum the coming days/weeks.

Bank of England governor Bailey during his testimony before the UK parliament stuck to a “gradual” approach to rate cuts. Inflation returned faster than expected to target (temporarily though, red.) and there’s evidence of a loosening in the labor market, Bailey said. But he also saw risks of “lingering persistence” of wage pressures. The latter take center stage in Europe tomorrow, with the negotiated wage indicator (Q3) due. The Bundesbank already today disclosed German wages in Q3 having grown at the fastest pace in more than three decades (8.8%).

News & Views

The Riksbank’s first deputy Governor Anna Breman in a speech said that ‘inflation has fallen, and that conditions are good for inflation to remain close to the target even in the medium term.’ At the same time, Breman assesses that economic activity is not yet showing clear signs of strengthening. This combination justified accelerating the pace of rate cuts to 50 bps bringing the policy rate to 2.75%. On the recent inflation development (CPIF 1.5%; CPIF ex energy 2.1%) Breman said that “Energy prices are still contributing to CPIF inflation being below two per cent. At the same time, food prices have risen in in recent months. This is important to monitor, not least when a weak krona risks pushing up the price of imported food.” Still, Breman assesses that recent inflation data don’t change the view that inflation will remain low and stable in the medium term. If the outlook for inflation and activity remains the same, she sees the policy rate being cut further in December and during the first half of 2025. Markets currently more or less discount a 25 bps step in December and a policy rate being reduced to 2.0% by Q1 2025. The Swedish krone recently stabilized at weak levels (EUR/SEK 11.58).

Inflation in Canada in October rebounded more than expected. Headline CPI printed at 0.3% M/M and 2.0% Y/Y, to be compared to -0.4% M/M and 1.6% Y/Y in September, as gasoline prices fell less in October compared to September. CPI ex-gasoline was unchanged at 2.2%. Price of goods rose 0.1% Y/Y up from -1.0% Y/Y in September. On the other hand, services inflation decelerated to 3.6%, the smallest yearly rise since January 2022. The Bank of Canada’s preferred core measures increased to 2.5% (from 2.3%) and 2.6% from 2.4%. Markets reduced the chance of an additional 50 bps rate cut to about 30% from +40% at the start of the session. The BoC meets December 11. Gains of the Loonie against the US dollar look unconvincing. USD/CAD is hovering near the 1.40 barrier.

Source: ACTIONFOREX

Energy – Iran counters Russia-Ukraine geopolitical risk

Despite an escalation in the Russia-Ukraine war, there has been limited impact on oil prices. ICE Brent settled almost flat yesterday, even after Ukraine fired a US-made long-range missile into Russia for the first time. At the same time, Russia also updated its nuclear doctrine, widening the scope for the use of atomic weapons.  

Eating into some of the geopolitical risks related to Russia-Ukraine were reports that Iran offered to stop increasing its stockpiles of uranium enriched up to 60%. The International Atomic Energy Agency has said Iran has taken the first steps to cap production. If this occurs, it removes some supply risks related to Iranian oil when President-elect Trump enters office.

In the North Sea, the Johan Sverdrup field has resumed operations after a power outage led to a halt in production on Monday. The field produces around 755k b/d but will take some time to return to full capacity.

Numbers from the API overnight show that US crude oil inventories increased by 4.8m barrels over the last week, compared to expectations for a marginal draw. For refined products, gasoline and distillate stocks fell by 2.5m barrels and 700k barrels respectively. The more widely followed EIA report will be released today.

Metals – LME lead stocks surge

LME lead stockpiles surged to the highest level since 2013 yesterday after a second consecutive day of big inflows into the exchange’s sheds in Singapore.  Singapore now accounts for 98% of LME lead inventories. Total LME inventories jumped by more than 49% in the last two days alone. Lead is one of the worst performers on the LME this year, with prices down around 3% year-to-date and weak auto sales weighing on demand for the battery metal. The global lead market is set to see another surplus this year. The global supply of refined lead will exceed demand by 40,000 tonnes in 2024, according to the International Lead and Zinc Study Group (ILZSG).

The latest LME COTR report released yesterday shows that investors decreased their net bullish position in copper by 10,315 lots to 58,398 lots for the week ending 15 November. This is the lowest net long since 19 January 2024. Similarly, net bullish bets for zinc fell by 2,737 lots to 27,072 lots, the lowest since the week ending 6 September 2024.

Agriculture – Wheat surges on Russia-Ukraine tensions

CBOT wheat futures extended their upward rally, settling 2% higher yesterday. This followed rising tension between Russia and Ukraine and renewed threats of supply disruptions.

Weekly data from the European Commission shows that EU soft-wheat exports for the 2024/25 season dropped to 8.8mt as of 17 November, down 31% YoY. Rising competition from Russia and a poor harvest in France has weighed on export volumes. Meanwhile,  EU corn imports stand at 7.6mt, up 11% YoY and are due to weaker domestic supply this season.

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Source: Euronews