Bull’s Eye on US Shutdown and ETF Approval

By Ang Kok Wee, Head of Treasury

Past Week’s Performance Dashboard 

Goldilocks Market 

After posting the best week of the year for US equities, markets last week kept its gains and maintained its buoyant mood. 

Despite Moody’s Investors Service reducing the US credit rating outlook from stable to negative last Friday, the market’s spirits remained undiminished.

In their statement, Moody’s attributed this downgrade to ballooning budget deficits and increasing political polarisation in the US.

Following the lead of Standard & Poor and Fitch, Moody’s was the final ratings agency to downgrade the U.S. credit rating. As such, this decision had a subdued impact on the overall market.  

Investors continue to be encouraged by yesterday’s softer than expected US Consumer Price Index, which continues to show signs of cooling (October YoY act. 3.2% vs fc. 3.3%). This is 50 basis points lower than the previous month’s YoY annual CPI.

Importantly, Core CPI, which is what the Fed looks at, is also trending lower and this could imply that the Fed’s policies are showing their intended results.

Market participants are interpreting this as a signal to the end of the rate hike cycle. Consequently, interest rates futures are pricing in a zero chance of a rate hike in December’s FOMC, down from 15% last week. Yields on the US 10-year Treasury continue its downtrend. It is currently at 4.45%.  

The upcoming Xi-Biden summit during the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco is also attracting attention. Key topics, including trade and relations-fraught issues like Taiwan, along with other geopolitical matters, are on the agenda. Recent diplomatic efforts ahead of the summit offer some hope for mutually beneficial economic agreements to emerge from it. 

Yet, challenges loom on the horizon. Another potential flashpoint is the U.S. federal budget deadline this week. Lawmakers have until November 17 to pass a stopgap spending bill to prevent a government shutdown. Recalling the last-minute passage of a temporary funding bill on October 1, which led to House Speaker Kevin McCarthy being ousted by his own party due to over-negotiating. His replacement, Mike Jonhson, would be keen to avoid making the same mistake. This could make it harder for the Democrats and Republicans to reach an agreement, and an actual government shutdown would most certainly undermine the recent surge in market optimism. 

Potential Market Catalyst This Week 

Economic Data: 

Nov 15 (Wednesday) 2130 hrs 

  • US Producer Price Index (PPI) (fc. +0.1% MoM) – Readings of this leading indicator have been volatile of late due to seasonality, with the past three months overshooting its forecasts. A stronger-than-expected figure may negate the positive effects from yesterday’s soft CPI print to the market. 
  • US Retail Sales (fc. -0.3% MoM) – Similarly, actual retail sales figures have overshot forecasts in the past three months, indicating a pattern of strong consumer spending and implying a desirable level of economic activity. A stronger-than-expected figure should be market positive. 


Range Bound 

Assisted by improving investor sentiments and declining US Treasury rates, Bitcoin has been able to maintain its upward trajectory, eking out a 0.6% gain for the week. It briefly rose to USD 38,000 on the back of the Ethereum Spot ETF news last Thursday and had mostly been consolidating around the USD 37,000 level.  

However, Bitcoin experienced a sharp decline early this morning which saw it plunge to USD 35,000 before stabilizing. This retracement, although somewhat anticipated, occurred in sharp contrast to the generally positive market sentiment triggered by encouraging US CPI data released a few hours earlier. This abrupt move led to the liquidation of approximately USD 120 million in leveraged long Bitcoin positions, predominantly futures contracts. 

With the current Bitcoin Spot ETF approval window closing by the end of this week and the next major window only occurring in mid-January 2024 (Fig.1), the likelihood of an early approval is diminishing, and potentially lacks the necessary momentum to drive Bitcoin’s price beyond USD 38,000 before a possible surge towards USD 41,000 (Fig.2). We maintain our view that Bitcoin will continue to trade within this new trade. In this context, strategies focusing on accumulation trades still present favourable risk-reward opportunities. 

Fig 1 Updated deadline for Bitcoin Spot ETF Applications Source Bloomberg


Fig 2 Technical Levels for Bitcoin and Ethereum

Bitcoin’s implied volatility has also blown off some steam (Fig. 3), suggesting a slower pace of option buying for upside exposure.   

Fig 3 Bitcoin Implied Volatility Across Various Tenures

Ethereum Shines 

Last Thursday, BlackRock’s registration of an “iShares Ethereum Trust” in Delaware triggered an 11.5% surge in Ethereum’s value, crossing the USD 2,000 mark for the first time in six months, and making a high of USD 2,135.  

This move to include Ethereum in their ETF portfolio is noteworthy given BlackRock’s influence, though it’s not groundbreaking as they’re not the first to apply for one. Despite this, Ethereum’s value may likely shadow Bitcoin’s bullish trend, if the recent extended hype around the Bitcoin Spot ETF were to be any indication.  

Since its major Shanghai upgrade in April this year, Ethereum has faced challenges in gaining momentum. This latest development could signal a change in market trends.

Ethereum is traditionally seen as more volatile (higher beta) than Bitcoin, and if bullish market sentiments fuelled by the Ethereum Spot ETF narrative continues, it is expected to outperform Bitcoin. Another sign could be that of the ETH-BTC rate, which indicates that a bottom may have formed and may continue to rally in the medium term (Fig. 4). 

Fig 4 ETHBTC Medium Term Outlook

This morning’s sharp retracement across cryptocurrencies also put a dent in Ethereum’s fledging momentum. It lost more than 5% of its value at one point, tumbling down to a low of USD 1,935. It now needs to reclaim the psychologically USD 2,000 level before testing the critical USD 2,135 peak again. 

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