BTC/USD Breaches US$100k: Where Next?

US high yield returned 1.15% in November, bringing the YTD return to 8.67%, according to the ICE BofA US High Yield Constrained Index (HUC0). The election of Donald Trump was the key driver of market activity in November. While there are uncertainties about what the new administration will propose and what will pass Congress, the market has viewed the election as positive for risk, and the S&P 500 ended November at an all-time high. In particular, the administration is expected to favor lower taxes and deregulation. While this direction for policy could further increase budget deficits and inflation, the new administration is also putting attention on shrinking and simplifying the role of government through an unofficial “Department of Government Efficiency,” which could potentially offset tax cuts with spending reductions. Beyond this, Trump is clearly enamored with using tariffs as a threat to both incentivize production in the US as well as achieve geopolitical goals, and depending on the details, tariffs could become a risk factor to lower growth and increase inflation. While Treasuries initially sold off after the election due to the prospect of fiscal expansion, they rallied in the second half of November thanks to the prospect of spending cuts, the fear of tariffs, and a market-friendly nominee pick for Treasury Secretary in Scott Bessent. In an overall risk-on environment, US High Yield rallied, CCCs led among the ratings tiers, and spreads tightened. Cable TV, Energy and Financials were among the best performing sectors, while Technology, Utilities and Food Retailers lagged. US High Yield ended the month with a yield of 7.16% and spread of 274.

Looking forward, the new administration is pro-growth, but also has a large “anti-establishment” influence and a fairly large appetite for change. Their overall thinking is relatively suspicious of America’s largest corporations, including technology, pharmaceutical, food, media and defense companies. That said, most substantive policy changes will require Congressional support, and the degree of support in Congress will be tested in the year ahead. Republicans control the Senate by a margin of 53-47 and the House by a margin of 220-215, so there is relatively little cushion to pass legislation if certain Republicans oppose a given idea and Democrats remain opposed. On the other hand, some of the ideas may find bipartisan appeal, contributing to the unknowns about what regulatory changes are coming. At this time, we expect some industries may benefit from lighter regulation and tariffs including financial services, industrials, and transportation. We believe that Energy companies could benefit from lower regulatory costs, but prices may come under pressure on increased supply. At the same time, consumer goods companies that rely on imports would be negatively impacted by higher tariffs. Sector and industry losers may include businesses that benefited from Biden administration priorities including green energy and healthcare.

The Fed has indicated that they will remain focused on the real economy and avoid speculating about future policy changes. The Fed still views policy as relatively restrictive and accordingly has a modest easing bias, and thus the market is pricing in three further cuts by the end of 2025, which if consummated would reduce overnight rates from 4 ½%- 4 ¾% today to 3 ¾% to 4% at the end of 2025. The Fed may make one cut in December, but this is not assured. Overall, NCRAM is optimistic that the election is generally supportive for growth and high yield issuers’ fundamentals, the Fed continues to cut rates over the next year, and the 7.16% yield on US high yield can help provide an attractive risk adjusted return.

The European High Yield market, as measured by the ICE BofA European Currency High Yield Constrained Index, returned 0.68% (EUR, unhedged) in November, and 8.64% for the YTD period. The impact of the US election in Europe was mixed, as risk assets were led higher by US equities, but the outlook for the European economy was more uncertain. The looming potential for tariffs impacted the already muddy outlook for European autos, while a potential for resolution to the Ukraine conflict was viewed as a positive (despite subsequent provocations in the region). The prospect of monetary policy divergence increased as it is expected the ECB will continue to cut steadily, while the Fed may need to entertain the impact of tariffs and fiscal stimulus. Ultimately, Europe still faces a tough structural backdrop with political and fiscal uncertainty in both Germany and France that should linger into 2025. Spreads widened during the month as 10-year Bund yields declined from 2.40% to about 2.10%, but demand remained strong and the cash market continued to rally. We expect that with continued strong technicals, the performance of the market should continue to be strong going into the end of 2024.

Emerging markets hard currency bonds delivered positive returns in November after a pause in October. EM Corporates, as measured by the JPMorgan Corporate Emerging Market Broad Diversified Index (CEMBI BD), gained 0.60% in November (8.22% YTD), with both high-yield and investment-grade buckets posting similar returns. Metals & Mining and Oil & Gas credits were the best performing sectors within the index. Spreads remained flat in EM investment-grade credits and widened only marginally in high-yield credits. Meanwhile, EM Sovereign bonds as measured by the JPMorgan Emerging Markets Bond Index Global (EMBIG) posted a 1.19% return in November (7.34% YTD), with EM high-yield credits gaining 1.96% and investment-grade lagging with a 0.61% gain, an outperformance of HY seen during most of this year. Our flagship EM strategies remained skewed towards high-yield credits during the month.

Bitcoin has staged a remarkable rally this year, doubling in price to nearly $100,000. As of today, it is near an all-time high. The drivers behind this rally have changed over the course of 2024: at the start of the year, momentum was fueled by the SEC’s approval of spot Bitcoin ETFs, allowing investors to gain exposure to Bitcoin without having to purchase or store it directly, a milestone in the institutionalization of the industry. More recently, Bitcoin has surged in the aftermath of the U.S. elections, up 40% in roughly a month. Excitement has been fueled by hopes of more favorable policy toward cryptocurrencies: the current SEC Chair, a long-time critic of crypto, announced that he would step down when the President-elect takes office, paving the way for Congress to establish a legal framework for crypto and further increase the industry’s legitimacy.

With Bitcoin and other cryptocurrencies now as close to “mainstream” as ever, many investors are asking: does crypto deserve a place in portfolio construction? Unfortunately, while the remarkable returns this year are hard to ignore, determining how or where crypto fits into strategic asset allocation is far from straightforward. To evaluate crypto’s potential role, it is helpful to first assess its success as currency. Here it falls short: it is neither an effective store of value (as evidenced by the incredible price appreciation) nor an effective medium of exchange (it is rarely accepted in retail transactions and while a legal framework might help to ameliorate this, the volatility of most crypto tokens will still keep merchants wary). It is therefore better to think of crypto as an asset.

As an asset, crypto is best thought of as an “alternative”, and therefore it is helpful to determine its ability to fulfill the typical roles of alternatives in portfolios: income (e.g., infrastructure), diversification (e.g., hedge funds) or alpha generation (e.g., private equity). Against the first two criteria cryptocurrencies again fall short. Most crypto assets, including Bitcoin, generate no income and Bitcoin in particular has been a poor diversifier: its three-year rolling correlations with stocks and bonds are both positive, as most cryptocurrencies have behaved like risk assets with hyper-sensitivity to interest rates since 2020. Crypto’s appeal has largely been its alpha generation potential, but even here challenges persist. While Bitcoin’s returns have been impressive, they’ve come with extraordinary volatility, four times that of the S&P 500. Moreover, unlike Bitcoin, equities are driven by predictable fundamentals, such as revenue and earnings growth, which analysts can forecast to estimate future performance. This makes them more reliable for long-term investment goals.

That said, one area where cryptocurrency does potentially have value is in the foundational innovation that underpins the asset: blockchain technology. At its core, a blockchain is a database, but one that makes significant improvements to the existing “rows and columns” method of storing information: it does not require intermediaries to function (which, for example, allows individuals to transfer assets digitally without the use of a third-party, like a bank) and it is extremely secure (the “crypto” in “cryptocurrency” refers to the cryptography that is used to secure transactions and verify the identities of users). For more promising blockchains, tokens can therefore be thought of as ownership stakes, since utilizing a blockchain requires transacting in its token.

Given these realities, the role of crypto in portfolio construction is mostly a function of risk tolerance. Cryptocurrencies are inherently unpredictable: there is little visibility into future price movements and blockchain technology, while exciting, also has few barriers to entry, meaning tokens can become obsolete (and therefore worthless) as new ones enter the market with improved functionality. As a result, for most investors, any allocation to crypto in a portfolio should be kept both small enough to ensure that even in the event of a significant sell-off it does not derail overall portfolio objectives and well diversified. 

Financial market calm comes despite the ongoing political turmoil, and although uncertainty is a headwind to the Euro, investors aren't spooked by ongoing events.

The reality is that France's government has the options to ensure it continues to limp on and avoid a shutdown or financial crisis.

"While the political situation remains unpredictable, the budget continuity should help reduce investor concerns around short-term fiscal stability," says Claudia Panseri, Chief Investment Officer at UBS WM France.

There are two routes that will allow the country to pass a new budget to ensure the ongoing functioning of the state.

The first would see the new Prime Minister make further concessions to Marine Le Pen's RN party, allowing it to force through the budget using a constitutional clause.

Barnier tried this, but this invoked the no-confidence vote that brought him down.

This time, the difference will be RN abstains from an ensuing no-confidence vote triggered by leftist parties. This means RN would not have voted for the budget, but at the same time they wouldn't have brought down the government.

A second option would be to extend the existing 2024 budget.

"The outgoing Prime Minister, Michel Barnier, or his successor would submit a special bill extending the 2024 budget into 2025. This would ensure a relatively normal functioning of the state next year. Both the far right and the far left have stated that they would vote for such a bill," says Panseri.

The UBS analyst says public spending would then be capped, and a proper budget bill would need to be adopted in 2025.

According to an internal report from the Ministry of Economy, Finance, and Industrial and Digital Sovereignty from this summer, the deficit would increase by 0.6 percentage points of GDP in 2025 in the absence of budgetary measures, mainly because social spending is rising faster than GDP.

This confirms that France's budget deficit will only continue to grow under the two likely scenarios, meaning a reckoning is merely delayed.

The country has broken EU deficit rules and must address them and UBS estimates France will need to implement fiscal consolidation of at least 0.5% of GDP per year in its primary structural balance.

This won't be popular and President Macron will hope that the next legislative elections, which can happen by July at the earliest, will break the political impasse.

Bitcoin broke $100,000 on Thursday as investors bet on a friendly regulatory shift in the U.S., while Asian stocks were firm after Wall Street indexes notched record highs on growing confidence in U.S. interest rate cuts.

Bitcoin hit the $100,000 mark in the Asia morning and was last at $103,400.

"At the end of the day, it's just a number," said Geoff Kendrick, global head of digital assets research at Standard Chartered.

"But the reality is we've been able to get to this level because the industry has become institutionalised this year particularly - and that's mostly the ETF inflows," he said, referring to exchange traded funds approved earlier this year.

The S&P 500, Nasdaq and Dow  had all notched record highs overnight.

Over the past week and a half markets have all but priced in an extra U.S. rate cut for 2025 and the implied chance of a cut in December has lifted from even to around 75%.

S&P 500 futures slipped a tad while European futures fell 0.2%. German stocks are up 4% in a week and at record-high levels.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2% as selling in Hong Kong offset gains in Australia and Japan. Japan's Nikkei touched a three-week high and was last up about 0.4%.

Hong Kong's Hang Seng fell around 1.1%.

The closely watched U.S. ISM survey showed services sector activity slowed in November after posting big gains in recent months. Benchmark 10-year Treasury yields fell three basis points to 4.182%. They were steady in Asia trade.

Federal Reserve Chair Jerome Powell made balanced comments at a New York Times event on Wednesday, describing the economy as in good shape but not really pushing back on market pricing for rate cuts.

Earlier this week Fed Governor Christopher Waller had said he was leaning towards a cut later in December. European retail sales figures and German factory orders are due later in the day, though the week's focus is on U.S. employment data on Friday where a strong reading could reverse bond-market moves.

"Generally data in the U.S. has continued to be pretty resilient," said RBC Capital Markets' chief economist in Sydney, Su-Lin Ong, noting measures such as the Atlanta Fed's GDPNow estimate are for solid growth at 3.2% in the fourth quarter.

"We think the market has got too much priced in."

The dollar tracked U.S. yields lower in the foreign exchange market, although not by much. The euro was pinned at $1.0525 by political turmoil in France, where the government lost a confidence vote for the first time since 1962.

French bond futures were steady in Asia trade.

The yen has retraced some recent gains and expectations for a rate hike in December have unwound following press reports pointing to policymakers' likely caution.

It was a tad firmer at 150.14 per dollar on Thursday. The Australian dollar , at $0.6435, was nursing what was its heaviest fall in a month on Wednesday following weaker-than-expected growth data.

Financial markets in South Korea were broadly steady after President Yoon Suk Yeol's failed attempt to impose martial law late on Tuesday triggered volatility and a political crisis.

In commodity trade, lingering expectations of Chinese stimulus supported iron ore prices, while oil inched higher ahead of an OPEC+ meeting later in the day.

The Organization of the Petroleum Exporting Countries and its allies in OPEC+ are likely to extend their latest round of oil production cuts, sources told Reuters.

Brent crude futures rose two cents to $72.33 a barrel. Gold prices steadied at $2,649 an ounce.

While market participants focus on pricing future risk, there can be valuable insight to be gained by reflecting on the past. Examining historical behaviours, price movements, and recurring trends provides a foundation of knowledge that can enhance our understanding of the markets.

By thoughtfully analysing past behaviours we can refine our perspective and the environment in which we deploy our trading strategies, and hopefully setting a more informed course for the year to come.

It’s flow and sentiment that drive markets;

Have an open mind and become a slave to the price;

The Hindsight Trader; Putting reasoning to a move in price after the fact;

Identify repeatable behaviours and patterns in markets;

Fear sells but events typically turn out positively;

Buying equity at all-time highs works;

High-concentration risk is fine but strong breadth is better;

Capital flows to growth, innovation and high return on equity.

So hear me out:

The Federal Reserve, Trump policy directives and the marque economic data may be seen as the most important inputs that guide the price of money and sentiment in the capital markets. However, it’s the intraday transactional flows put through the market that moves price, and it’s the level, direction and rate of change in price that drives sentiment, and ultimately price is what traders react to.

While these factors are certainly not new to 2024, our understanding of the influence that portfolio and trading flows have on short-term price changes has certainly increased throughout the year. The knowledge and newfound respect for these flows – many of which are opaque and not reported in real-time - reinforces the notion that it can pay to be humble to price action and to align with the underlying trends and momentum in markets.

With so much of the daily volume across all markets driven by high-frequency funds, 0 DTE (Days to Expiry) options and the subsequent dealer delta hedging flows, and end-of-day leveraged ETF rebalancing, we so often see unexplainable intraday momentum shifts and even reversals. We can consider the flows seen from Commodity Trading Advisors or “CTA’s” (systematic momentum/trend-following funds), volatility-targeting and risk parity funds, which can all perpetuate momentum and trends in markets.

Throughout 2024 we’ve seen notably lasting trending conditions in many of our key markets, including the USD, the S&P500, NAS100, crypto, Nvidia and gold.

Many who don’t follow a rules-based trading strategy frequently question the logic behind a sustained move and see the market as incorrectly priced and the recent move as unjustified, often resulting in traders taking counter-trend positions.

In many cases, taking an opposing view to the aggregation of these flows has had a negative impact on the account balance. Remember, the price represents the collective views in the market and the aggregation of all behaviours, however rational or irrational. Yet, for those trading with leverage, if the collective in the market is acting against your view, it may cost.

Having an open mind to what the collective is therefore expressing is still the best guide on where the market may be heading, and regardless of what any individual thinks, trading is about assessing the probabilities of where the collective will likely take price over a timeframe.

Again this comes down to having an open mind and just seeing a move for what it is; The aggregation of all beliefs and views and subsequently becoming a slave to price.

If 2024 has taught US equity, Bitcoin and gold traders anything (and often FX traders too), it’s to question the “why” less, and to align with the underlying trends.

Gold is a prime example - where market players have seen an outsized move on the day and the fundamentalists tried to explain – after the fact - what exactly caused the move. Often this reasoning came down to one of a multitude of reasons: Weaker US real rates, increased pricing of implied Fed cuts, a weaker USD, central bank buying or a hedge against US fiscal recklessness or geopolitical anxieties.

Yet, soon after, geopolitical concerns abated, US real rates pushed higher, implied Fed rate cuts were priced out and the USD rallied, and gold still managed to push higher.

We’ve seen throughout 2024 that there has been very little edge gained in trying to pick a solid reason for the move. Let price guide, rather than picking a reason for the move after the fact.

It’s always advantageous to understand why we adopt a technical, price action or even quantitative approach to discretionary or automated trading. In essence, most strategies involve identifying repetition in some form. That is seeking out repeatable behaviours and actions that offer a higher probabilistic outcome of reoccurring.

This is why many look at technical patterns, candlestick analysis, statistical relationships between stocks, or on a cross-asset basis, or consistent behaviours in a market at a certain time of day, over a key data release or even over company earnings.

The best way to truly quantify repeatable behaviours is using ChatGPT or Machine Learning, and to objectively understand if there is a higher probability of a set of behaviours observed in a pattern reoccurring.

Of course, if everyone is looking at the same thing then the chances are that any edge, we may obtain in the future is lost. However, it’s my view that repetition is the essence of technical, price action or quant trading and is a reason to start to consider how ChatGPT and GenAI can help with trading in 2025.

There is nothing inherently wrong with thinking of negative outcomes, preparing for a worst-case scenario and recognising the trigger points that offer a higher probability of it occurring.

These scenarios typically start off as a broad market concern, then evolving with deteriorating liquidity conditions, deleveraging, a rush to buy volatility and options dealers hedging exposures - all cascading to result in big distortions in markets.

However, after the initial ‘excitement’ occurs, time and time again the market is quick to realise a positive outcome, and after a V-shaped reversal in price and markets collectively ‘climb the wall of worry’, the saga is soon forgotten. Throughout 2024, US recession calls, in part driven by the inverted yield curve, have been repriced with US economic resilience and even exceptionalism once again a key theme of 2024.

Case in point, rising concerns of an unwind of the heavily owned JPY-funded carry trade, resulted in extreme moves on 5 August in the JPY, the NKY225 and many tech-heavy markets. However, while some were still peddling doom, the buy-the-dip crowd went to work, and the negativity soon dissipated.

We can add worries perennial about the Chinese economy, the sustainability of US debt levels and fiscal recklessness, the French political situation and now with Trump’s tariff policy – the fact has been, while we see short-term bouts of high anxiety and volatility these things typically resolve in a positive fashion.

It's never easy to buy any major equity index trading on a multi-year high P/E ratio, especially one which sits at a 52-week high, let alone at an all-time high. However, while 2025 could see an end to the raging US equity bull market, what we’ve learnt in 2024 is that traders should have no fear in buying the S&P500, the Dow, or even the ASX200 or German DAX at all-time highs.

In fact, the S&P500 has printed 55 separate all-time highs in 2024 and if we remove the extreme liquidation seen in early August, the max drawdown in 2024 was 5.9% in April, with a max drawdown in Q4 of just 3.1%.

What has impressed through all the 27% YTD gain in the S&P500 has been the ever-intensifying approach in rotating portfolio holdings within sectors, styles and factors.

Granted, there have been periods throughout 2024 where there’s been increased concern of concentration risk, with the market cap of the MAG7 stocks accounting for 32% of the total S&P500 market cap. However, The S&P500 has put in some of its best work as concentration risk and poor market breadth were evident.

What was clear is that when the MAG7 names (Nvidia, Meta and Amazon for example) became too hot or the investment thematic changed, investment managers rolled into value, quality defensives and even cyclically sensitive areas of the market. This incredibly active approach to rotate portfolio holdings within sectors and factors resulted in reduced volatility and limited index drawdown and should be seen as the epitome of a healthy bull market.

Whether it continues in 2025 is yet to be seen, but unless we see news that radically changes the investment case for US big tech/AI, then I have limited concerns about the concentration risk in US equity markets.

There’s a reason why the USD has worked well throughout much of 2024, and why the S&P500, the Dow and the NAS100 have all outperformed other major equity indices by such an incredible margin. For content, YTD the S&P500 has outperformed the EU Stoxx by 26ppt, China by 14.8ppt and Japan by 19.7ppt. EU Stoxx 50 (priced in USDs) / S&P500

Investors are attracted to earnings growth, but they also want to be leveraged to where domestic GDP is the strongest and where there is the least amount of perceived risk. Not only is the US economy in a relatively strong position, but the Fed has underpinned risk with its commitment to ease rates on any further signs of fragility in the labour market. Both US and international investors have also been drawn to the sheer quantity of high-quality and innovative US businesses, with broad levels of high returns on equity that simply cannot be matched in any other global equity markets.

Whether this preference to “Buy US equity” continues in 2025 is obviously yet to be seen, and perhaps the relatively high valuations will become more of a headwind for US equity outperformance. However, when we consider the likely positive impact of deregulation, tax cuts and the late 2025 boost from fiscal, it’s hard to bet against this two-decade trend of US equity outperformance.

I have no doubt 2025 will continue to school all who are active in markets – we are always learning, always humble and open-minded to challenges put in front of us. These are a few factors I’ve picked up along the way. There are of course, many more and feel free to reach out to me on what caught your attention and how it will affect the way you think about markets in 2025.

Bitcoin surpassed $100,000 for the first time, while Asian shares were mostly higher Thursday, taking their cues from another Wall Street record rally.

U.S. futures edged lower while oil prices crept up.

Bitcoin has been nudging toward $100,000 and it surged late Wednesday, U.S. time, after President-elect Donald Trump chose crypto advocate Paul Atkins as his nominee to head the Securities and Exchange Commission. The cryptocurrency has climbed dramatically from $69,374 on Nov. 5, Election Day. As of 11 p.m. ET, it was up 4.7% at $103,308.27.

South Korea’s Kospi fell 0.6% to 2,449.74, extending a 1.4% decline the day before as President Yoon Suk Yeol was facing possible impeachment after he suddenly declared martial law on Tuesday night. He revoked the martial law declaration six hours later.

Yoon accepted his defense minister’s resignation Thursday as opposition parties moved to impeach both of them. The main opposition Democratic Party and other small opposition parties submitted a joint motion to impeach President Yoon Suk Yeol on Wednesday over his martial law declaration.

Elsewhere in Asia, Japan’s benchmark Nikkei 225 added 0.3% to 39,406.04, while Australia’s S&P/ASX 200 gained 0.2% to 8,474.90. Hong Kong’s Hang Seng slipped 1.0% to 19,541.09. The Shanghai Composite gained 0.3% to 3,374.91.

Taiwan’s Taiex gained nearly 0.1%, while the Sensex in India was down 0.1%.

“As the dust settles and a fragile calm returns to the Korean markets, Asia braces for a bouncy Thursday. The mood is buoyed further by a fresh wave of record highs on Wall Street,” Stephen Innes, managing partner at SPI Asset Management, said in a commentary.

On Wednesday, shares got a boost from upbeat talk by tech companies about the artificial-intelligence boom.

The S&P 500 climbed 0.6% to 6,086.49, adding to what’s set to be one of its best years of the millennium. It was the 56th time the index has hit an all-time high this year after climbing in 11 of the last 12 days.

The Dow Jones Industrial Average rose 0.7% to 45,014.04, while the Nasdaq composite added 1.3% to its own record, closing at 19,735.12.

Salesforce jumped 11%, helping pull the market higher after delivering stronger revenue for the latest quarter than analysts expected, though its profit fell just short.

CEO Mark Benioff highlighted the company’s artificial-intelligence offering for customers, saying “the rise of autonomous AI agents is revolutionizing global labor, reshaping how industries operate and scale.”

All the optimistic talk helped Nvidia, the company whose chips are powering much of the move into AI, rally 3.5%. It was the strongest force pushing upward on the S&P 500 by far.

Retailers overall have offered mixed signals about how resilient U.S. shoppers can remain. Their spending has been one of the main reasons the U.S. economy has avoided a recession that earlier seemed inevitable after the Federal Reserve hiked interest rates to crush inflation. But shoppers are now contending with still-high prices and a slowing job market.

This week’s highlight for Wall Street will be Friday’s jobs report from the U.S. government, which will show how many people employers hired and fired last month.

Expectations are brewing that the Fed will cut its main interest rate again when it meets in two weeks. The Fed began easing its main interest rate from a two-decade high in September, hoping to offer more support for the job market.

The central bank had appeared set to continue cutting rates into next year, but the election of Donald Trump has scrambled Wall Street’s expectations somewhat. Trump’s preference for higher tariffs and other policies could lead to higher inflation, which could alter the Fed’s plans.

Fed Chair Jerome Powell said Wednesday that the central bank can afford to cut rates cautiously because inflation has slowed from its peak two years ago and the economy remains sturdy.

In the bond market, the yield on the 10-year Treasury fell to 4.18% from 4.23% late Tuesday.

In other dealings early Thursday, benchmark U.S. crude added 1 cent to $68.55 a barrel. Brent crude, the international standard, was unchanged at $72.31 a barrel.

In currency trading, the U.S. dollar fell to 149.90 Japanese yen from 150.62 yen. The euro cost $1.0531, inching up from $1.0510.