Which European Countries Rely Most on Exports to the US?

Market Picture

The total capitalisation of the cryptocurrency market approached $3 trillion, rewriting the record set almost exactly three years ago. During the day, the indicator grew by more than 8%. The nature of the movement indicates the liquidation of short positions in the largest coins, primarily bitcoin. At the same time, individual altcoins are increasingly shooting up.

The first cryptocurrency soared almost 10% in 24 hours, coming close to $90K, although only a little over a day ago, it tried to consolidate at $80K. Reaching the $100-110K target area now looks like a matter of a couple of weeks or even days.

Dogecoin is even more actively destroying sceptics with open positions. In 24 hours, it soared 44% to $0.4. It traded sustainably higher for only 15 days in May 2021. This area was pivotal in April and June that year, so it’s worth paying extra attention to it this time around as well.

News Background

According to CoinShares, global crypto fund investments rose by $1.978bn last week after inflows of $2.177bn previously. The positive trend continued for the fifth consecutive week. Investments in Bitcoin increased by $1.796bn, Ethereum by $157m, and Solana by $4m. Investments in funds with multiple crypto assets increased by $23m.

Inflows into crypto-ETFs since the beginning of the year reached $31.3bn. Due to price growth, global assets under management reached a new all-time high of $116bn. Trading volumes rose to their highest level since April. The combination of a favourable macroeconomic environment (Fed rate cuts) and seismic shifts in the US political system (after Trump’s victory) are likely reasons for such favourable investor sentiment, CoinShares suggests.

According to founder Michael Saylor, MicroStrategy bought an additional 27,200 BTC between 31 October and 10 November for $2.03 billion (at ~$74,463 per coin). The firm now holds 279,420 BTC, acquired for $11.9bn at an average exchange rate of $42,692.

MN Consultancy head Michael van de Poppe said that the much-anticipated altcoin season has begun in the background of Bitcoin’s new all-time highs. He described Ethereum’s rise in recent days as impressive. The altcoin bull cycle could last until 2026 or 2027 and transform into a full-blown Supercycle.

In the past few days, the bankrupt FTX has filed 23 lawsuits against various companies and individuals to recover funds from creditors. In the lawsuit against Binance, FTX’s lawyers are demanding the return of $1.8bn paid as part of a share buyback in 2021.

Macro:

Equities

Volatility

Fixed Income

Commodities

Currencies

USD: Don't fight the trend

US equity markets continue to plough ahead. There is an emerging narrative that unlike in 2016, when Donald Trump was unprepared for office, this time around he plans to hit the ground running in January. To some degree that supports the extension of the Trump trades right now and tends to subdue the investment thesis that it will take his administration a year to deliver any major initiatives – as was the case in 2017.

The above is reflected in the FX options market. Traded levels of volatility fell sharply last Wednesday after it quickly became clear that the Republicans would win big. The idea here was that the major event risk was out of the way – and perhaps the market would sit around waiting for the next big trend. But what we have seen so far this week are early signs of active engagement in a new dollar bull trend. Traded levels of volatility are rising notably as it seems the market is actively positioning (investors) or hedging (corporate treasurers) in expectation of a stronger dollar. All we would say here is not to fight this emerging trend.

Today we will see the October update of the NFIB small business optimism index. This is expected to remain off early-year lows and presumably could pick up over coming months on the Republican win and what it means for corporate taxes. And at 1600CET we have a speech from the Fed's Christopher Waller. Presumably, he will follow Chair Jerome Powell's lead from last week and not get drawn into questions about how the Fed will react to Trump's proposed agenda.

DXY has some resistance here at 105.70, but the highs of the year near 106.50 are very much in focus.

EUR: 'Atlantic spread' moves wider still

The 'Atlantic' spread as some traders call it has widened even further. Two-year EUR:USD swap differentials have now widened beyond 180bp in favour of the dollar. We haven't seen this kind of level since 2022, when EUR/USD was trading close to parity. Admittedly those parity levels in 2022 were partly caused by the surge in energy prices and the terms of trade impact on the euro – a negative factor that is not present today. Still.

EUR/USD looks ready to test 1.0600, below which our end-year target at 1.05 beckons. As above, one month implied EUR/USD volatility is being brought back up towards 8% having been offered near 6.50% last week. The only events of note on the European calendar today are ECB speakers (Olli Rehn and Robert Holzmann), who will probably not stand in the way of an ECB rate cut in December. The question is, will it be 25bp or 50bp? The market prices 30bp. Our eurozone team think it will be 50bp.

GBP: Focus on Huw Pill speech

Today's September release of UK earnings data has come in slightly stronger than expected and it looks like the downward momentum in private sector pay has started to slow. However, this data set has fallen out of favour with the Bank of England (and hence the market).

More interesting today should be a 10CET panel appearance today from Chief Economist Huw Pill. The subject of the panel is: 'Reversing the great global tightening – how far and how fast?' Pill dissented from the BoE decision to cut rates in August and is therefore seen more as a centre/hawk on the MPC. The market is already pricing in only a modest BoE easing cycle from here – just three rate cuts next year. And unless there is a major surprise from Pill today, that pricing can stay intact. If so, EUR/GBP will struggle to sustain a move over 0.8300/8315 now and should continue to head lower.

CEE: Romania and Hungary complete the inflation picture

After yesterday's inflation number in the Czech Republic came in line with central bank expectations, this morning we received the numbers in Romania and Hungary for October. This completes the picture in the CEE region. In Romania, headline inflation rose slightly and was marginally above market expectations. Yesterday's presentation of the National Bank of Romania inflation report showed a hawkish stance by central bankers and essentially a wait-and-see approach due to the November elections, an unclear fiscal picture, and a higher inflation projection.

In Hungary, headline inflation rose from 3.0% to 3.2% YoY, below market expectations and two-tenths below the National Bank of Hungary forecast (3.4%). However, the main variable at the moment is EUR/HUF, which yesterday moved above 410 after two days of post-election relief. Thus, the central bank will remain on the hawkish side regardless of inflation. If EUR/HUF continues to move higher, the market will increase bets on additional National Bank of Hungary (NBH) measures in the form of liquidity tightening or an eventual rate hike. We believe the NBH is more resilient than in the past, but levels above 410 will raise questions of a policy response again and it will be hard to reverse course in the current negative conditions for CEE, as we discussed yesterday. We expect more pressure on the region in the days ahead.

Bitcoin added another 10% yesterday and came just shy of the $90K per coin, while Ethereum flirted with the $3400 mark. The crypto-friendly Donald Trump – who says that the US should become the center of the digital assets – will probably remove the crypto-sceptics of the government institutions from their position and replace them by crypto-friendly regulators who will let the crypto industry ‘thrive’ in the US. And when there is a comprehensive and solid policy ground, the banks could more comfortably integrate cryptocurrencies on their platforms and attract more institutional money on board. More demand should push the price of Bitcoin – which has a limited supply – higher. Eyes are on the $100K mark and above. High volatility will be on the menu for Xmas.

Elsewhere, the S&P 500 consolidated gains near ATH level, while small caps extended rally by 1.5% despite the rising US yields – which should become a challenge for the US small caps as the post-election euphoria settles.

In the traditional currencies, the US dollar index is pushing higher along with the US yields on expectation that Trump’s pro-growth policies and tariffs would lead to higher inflation and softer-than-otherwise policy easing from the Federal Reserve. That’s in contrast with the worsening economic and political outlook for the Eurozone, with Germany preparing for a snap election on government’s inability to tackle the financial difficulties and revive growth. The euro tanked to 1.0628 against the US dollar, and to 0.8260 against the pound yesterday. The German and the Eurozone economic sentiment indicators are due this morning and are somehow expected to print a slight improvement in November, but a slight improvement per se won’t be enough to lift mood in Europe while Trump’s tariff threat is taking a toll. The Stoxx 600 rebounded yesterday, probably on the expectation that a softer European Central Bank (ECB) policy could boost valuations, but the ECB will probably remain more cautious than many expect when it comes to easing policy because a rapid appreciation of the US dollar will have a boosting effect on global (and euro area) inflation and could eventually limit the ECB’s ability to cut wholeheartedly.

In Japan, the likelihood of further policy normalization is melting by the day. There is still hope – for the yen bulls – that the Bank of Japan (BoJ) will deliver another rate hike in December or January, but to me, the December meeting is probably off the table, and January is on a very slippery ground. One of the new PM Ishiba’s closest allies, Economic Revitalization Minister Akazawa, attended the BoJ meeting for the first time and he said that it’s important for the BoJ to continue monetary easing to ensure a complete end of deflation. Of course, this man is responsible for Economic Revitalization, and of course he has appetite for favourable monetary policy, but the BoJ has more doves on board than hawks, and the rising global uncertainties look increasingly supportive of the yen bears until a new FX intervention is triggered. Soft yen, combined with the government’s pledge to support growth – especially in tech space – remain supportive of the Nikkei.

In energy, the barrel of US crude kicked off the week on a negative note. Trend and momentum indicators have turned negative and the RSI suggests that there is room for further selloff before the market hits the oversold conditions. Next natural target for the bears stands at $65pb. As such, it’s probably just a matter of time for the USDCAD to reach the 1.40 psychological mark.

Elsewhere, the AUDUSD is bearing the brunt of falling iron ore prices on sluggish Chinese growth outlook and the energy and mining heavy FTSE 100 was better bid yesterday and should benefit from a broad-based USD strength, but a softer pound alone won’t enough to keep the FTSE 100 in the actual bullish trend. The prospects of higher-than-otherwise global yields – as the US is expected to exports its Trumpflation – look unpromising. The major support to the past year’s rebound stands a few points above the 8000p psychological mark.