Market Picture

The crypto market capitalisation has reached $2.75 trillion, approaching the peak of $2.77 trillion reached in March this year. The next target for the crypto bulls looks to be the historical highs at $2.86 trillion and possibly even the next round level of $3.0 trillion.

Bitcoin has broken the upper boundary of the ascending channel, accelerating the renewal of historical highs. A key technical target and next milestone now appears to be the $100-110K area, as the five-month drift down from $73K to $50K looks like a correction of the bullish momentum from September 2023 to March 2024. The breakout to new highs confirmed the extension of the bullish momentum, making the 161.8% level the next target. Next, the $100-110K area should be ready for a major shakeout as many will be looking to take profits after impressive gains and on reaching key round levels.

Bitcoin is attracting attention with its all-time highs and weight in the crypto market. However, altcoins such as Dogecoin and Cardano, although far from their highs, more than doubled in value in the 5 days following Trump’s victory before correcting late on Sunday. Although both coins look overbought on daily timeframes, they are being driven by FOMO and short squeeze, which promises more chaotic moves in the coming days. Perhaps now is the time to pick up altcoins, which have so far shown growth rates averaging between Bitcoin and Dogecoin.

News Background

From a fundamental perspective, Bitcoin shows no signs of overheating. Galaxy Digital notes the lack of a spike in funding costs for perpetual contracts and a moderate increase in open interest (OI) for cryptocurrencies in general.

According to Fundstrat co-founder Tom Lee, Bitcoin prices will rise to “six figures” before the end of the year. He believes the likely reason for the interest in BTC is its potential as a reserve asset. Trump has previously promised to create a national Bitcoin reserve.

Technical analyst Peter Brandt commented on the optimal time to buy Bitcoin. According to him, the asset will rise another 73-100% and form a cycle top in August or September 2025.

The US SEC has postponed a decision on the NYSE’s proposal to list options-based spot Ethereum ETFs. The NYSE requested this from the SEC on August 7th.

Tether’s investment arm has funded a $45 million USDT crude oil deal that is “the first of its kind” and provides new lending opportunities in various areas, the company said.

The Ethereum Foundation (EF) reported $970 million in cash reserves, which includes liquid and vesting allocations. In 2022-2023, startups in the Ethereum ecosystem received $497 million in funding, according to the EF report.

Energy - Natural gas strength, oil weakness

Oil prices came under further downward pressure yesterday. ICE Brent settled almost 2.8% lower on the day, falling below $72/bbl. USD strength - an ongoing theme since the US election - has provided strong headwinds not just to the oil market but also to the broader commodities complex. In addition, prompt time spreads for Brent and WTI have collapsed recently, moving closer to contango, suggesting a better-supplied physical market. Our oil balance through 2025 shows a surplus on the assumption that OPEC+ unwinds cuts as currently planned and that we do not see any dramatic changes to Iranian export volumes.

OPEC will release its monthly oil market report today which will include its latest outlook for the market through 2025. There is the potential for further demand revisions from the group. Last month, OPEC cut its demand growth forecasts by 110k b/d and 100k b/d for 2024 and 2025 respectively. However, the group still estimates demand to grow by 1.93m b/d this year and 1.74m b/d next year, which is still very aggressive compared to other demand estimates, which are nearer 1m b/d.

The natural gas market saw significant strength yesterday. Henry Hub settled 9.4% higher on the day, taking it above $2.90/MMBtu. Colder weather contributed to the move, while short covering added to the move. The latest CFTC data shows that speculators were holding a net short of almost 146k lots in Henry Hub as of last Tuesday, a sizeable short, which leaves plenty of potential short covering with the right catalyst.   

In Europe, natural gas prices have also rallied. TTF settled more than 3.1% higher yesterday. Lower wind power generation has provided support to gas prices, while the forecast also shows cooler weather in the region, which should be supportive for heating demand.

Iron ore slips back to $100/t

Iron ore slipped back to $100/t level on Monday after Beijing’s latest stimulus efforts mostly disappointed the market. Iron ore is among the most vulnerable to China's slowdown risks as the country's property market constitutes the bulk of steel demand. Beijing’s stimulus measures so far have focussed on clearing property inventories rather than boosting new starts, which is the biggest steel demand driver. In addition, China's iron ore port inventories have been increasing, further pressuring prices. They now stand at the highest level since early September. We believe high iron ore availability in China will continue to put pressure on prices.

[Quick Facts]

[News Details]

[Today's Focus]

Domestically, the main event was the RBA’s November policy meeting, where the Board decided once again to leave the cash rate unchanged at 4.35%. Communications on the day – via the decision statement, press conference, and Statement on Monetary Policy – provided more colour around changes to the RBA’s forecasts. Most notable were a near-term downgrade to consumer spending and the edging down of underlying inflation in 2026, while the outlook for employment growth was revised up.

On balance, developments since the last policy meeting have not materially altered the RBA’s perspective, a mixed picture on the domestic economy reinforcing the Board’s patient approach of “not ruling anything in or out” for the time being. Echoing this point, the Board’s policy discussion in November considered the balance of risks around the central case of remaining on hold versus actively considering a rate hike or cut – similar to September.

In a video update midweek, Chief Economist Luci Ellis explained the key takeaways from the RBA’s decision in more detail. In our view, the RBA’s interpretation of the recent data flow is slightly more hawkish than our own, offering greater certainty the RBA Board will not change their stance this year. However, we remain of the view that the first rate cut will be delivered in February 2025 and easing will continue at a measured pace of 25bps per quarter from there until 3.35% in Q4 2025, a rate we consider to be broadly neutral for the economy.

Offshore, the medium-term settings and consequences of fiscal policy are becoming less certain, but the immediate path for monetary policy is clear.

Throughout the week, markets were squarely focussed on the US Presidential and Congressional elections. Donald Trump comfortably surpassed the 270 Electoral College votes needed to serve a second term as President. While some Congressional contests are still to be confirmed, the Republican party looks to be on track to hold a majority in both the Senate and House of Representatives. These results should give President-elect Trump considerable scope to enact mooted policy reform across tax, regulation, spending and trade. While specific policy detail won’t be known until after inauguration on 20 January, the net result for the deficit is expected to be expansionary, steepening the uptrend in Federal Government debt on issue over the coming decade. Market participants are likely to continue to front-run fiscal decision making, holding Treasury yields around their current level, almost 75bps above September’s low.

The immediate outlook for monetary policy is certainly not behind the lift in yields. Last week the FOMC followed up September’s 50bp cut with a 25bp reduction, taking the mid-point of the fed funds range to 4.625%. Chair Powell was clear in the press conference that the Committee expect inflation to continue to abate to target, with non-housing services and goods inflation already consistent with headline inflation of 2.0%yr, and strength in housing inflation a consequence of past agreements not current market dynamics. While positive on the outlook for activity and employment, it is clear the FOMC are now more concerned with downside risks for the labour market than upside price risks. Any further deterioration in the labour market would be unwanted.

On last week’s election specifically, Chair Powell made clear that the outcome will have no effect on monetary policy in the near term. It is only over time, as policy is committed to and implemented, that the economic implications become clear and any monetary policy response can be decided upon. The December FOMC meeting will be the first opportunity for Committee members to update their forecasts; however, this will be more than a month before the new administration takes office, let alone when the President-elect and new Congress begin to debate policy. By late-2026 however, we believe the FOMC will see a need to tighten policy to counteract the cumulative inflationary consequences of more expansionary fiscal policy, which is likely to focus on supporting demand versus supply. With much of the expected fiscal policy effects already priced in, term interest rates are likely to hold near current levels over the coming year, then edge higher from late-2025, pre-empting monetary policy tightening.

Across the pond, the Bank of England also cut rates by 25bp to 4.75% last week. The Committee provided its assessment of the new government budget, nudging the GDP profile higher by ¾% at its peak in Q4 2025. A rise in employment costs from an increase in the National Living Wage and changes in the employers’ National Insurance contribution will also influence wages and profits margins, and ultimately inflation. The inflation outlook was nudged up from Q3 2025, with headline inflation not expected to be sustainably at target until Q2 2027, a year later than in the prior set of forecasts. The BoE’s central case is that further economic slack is needed to normalise inflation and wage dynamics, warranting a ‘gradual approach’ to removing restrictive policy. The exact pace of rate cuts from here will depend on the data flow, meeting by meeting. The closer Bank Rate gets to its neutral level, the greater the justification for prudence.

Having Trump championing your corner is a strong position to be in

Last week ended on a very positive note for the US equity markets. All major indices rallied, the S&P500 notched its best week in more than a year and toped the 6000 level for the first time in history. The Dow Jones traded past the 44’000 level for the first time as well, while Nasdaq 100 closed above 21’100, and small caps approached at ATH, despite some investors pessimism that the Trump-fuelled US yields could backfire on small caps as they have smaller margin to shoulder higher-than-otherwise borrowing costs. And indeed, the Minneapolis Federal Reserve (Fed) President Neel Kashkari said that the bank could lower the rates less than previously anticipated, but he rather pointed at the strength of the US economy rather than Trump policies. He said that it’s too early to determine the impact of what’s to come in terms of Trump policies. If the new President favours tax cuts over tariffs, the US equities could continue to surf on a wave of optimism, while focusing on tariffs before tax cuts would brush off a part of the present optimism.

For now, optimism prevails. During the weekend, the Trump optimism continued to show in Bitcoin prices. The price of a coin spiked past the $81’000 level, and the next natural target on the grill is the $100’000 psychological level.

That’s the American leg of the story: the picture remains bullish for the US equities. Elsewhere, worries mount: FTSE 100 and the European Stoxx 600 index both closed last week below the 200-DMA on worries about a heated international trade environment and the Chinese leg of the story is much less dreamy, too. China announced that it will deploy 10 trillion yuan to refinance local government debt, as expected by investors. Alas, the announcement failed to revive optimism as many were hoping to see bigger measures deployed in response to Trump presidency – who is now expected to increase tariffs on Chinese goods to 60%. As such, the big banks are back to cutting their growth forecasts for China. Standard Chartered and Macquarie expect the increased US tariffs to shave 2 percentage points off annual growth. While UBS trimmed its growth forecast from 4.5% to 4%.

The data released during the weekend wasn’t encouraging, either. Consumer inflation in China came in line with expectations, but deflation in producer prices unexpectedly accelerated last month to -2.9% on a yearly basis, and came as a mixed signal on the impact of the stimulus measures on the Chinese economy. As such, the CSI 300 bounced lower on Friday and erased a part of last week’s gains that were built on optimism that the Chinese stimulus measures would – this time – please.

And crude oil is under a renewed pressure since Friday, on China’s failure to wet investors’ appetite with fiscal stimulus measures. The barrel of US crude is back testing the $70pb support to the downside, having erased past week gains that were supported by geopolitical worries and hints that OPEC would delay the end of its production restrictions by at least a month. Iron ore is also under pressure, the spot price slipped below the 100-DMA and the latter weighs on the Aussie.

Elsewhere, in the FX, the US dollar index remains bid on rising uncertainties regarding the Fed’s easing path. For now, the markets still expect the Fed to deliver another 25bp cut before the year ends, but that probability fell from above 70% to below 65%. The data – especially the inflation data – will gain importance moving forward as Trump policies – the tax cuts and tariffs – are inflationary and will certainly limit the Fed’s capacity to ease wholeheartedly. This week, investors will focus on the next US CPI update, due Wednesday. The headline inflation is seen steady at 2.4% and core inflation unchanged at 3.3%. Higher-than-expected figures could further awaken the Fed hawks and support the dollar bulls against major peers.

Speaking of major peers, the EURUSD is testing the 1.07 support to the downside. The Trump’s tariff threat on European imports has become one of the major drivers here as well, combined with the troubled French finances and the chatter of early election in Germany. A further retreat is on the cards, unless we see a surprise easing in US inflation. Across the Channel, Cable consolidates below the 1.30 level. The Bank of England’s (BoE) less dovish stance after the UK budget is countered by a broad-based dollar strength, yet sentiment in EURGBP reflects well the divergence between more dovish ECB expectations and less dovish BoE expectations. And the latter points at a possible and a sustainable advance in EURGBP to 0.80/0.82 area.