Weekly Market Update: Week of October 24: New Rate Cuts Incoming?

Markets are now pricing in 75 basis points of rate cuts by year-end, driven by a lower-than-expected CPI print and heightened uncertainty stemming from the ongoing U.S. government shutdown, which is impeding key economic data releases. Amidst this macro and political backdrop, digital assets are demonstrating resilience, with Bitcoin products attracting $528 million in inflows this week as investors favor it as a non-traditional hedge, contrasting with $100 million in outflows from Ethereum products, signaling a potential shift in crypto market sentiment and asset allocation.

Analysis

The market is now pricing in 75 basis points of rate cuts by year-end, with 25 bps anticipated in October and an additional 50 bps in December. This expectation is largely driven by a recent CPI print of 0.3% month-on-month, below the 0.4% consensus, suggesting modest inflationary effects. The ongoing U.S. government shutdown has frozen most macroeconomic data releases, forcing reliance on this single inflation reading and creating uncertainty due to absent employment data.

The political stalemate in Washington continues, with the government shutdown entering its fourth week after the Senate failed to pass a continuing resolution (50-43 vote). This partisan deadlock, centered on reopening the government versus preserving Affordable Care Act subsidies, is causing growing disruptions across federal operations. The prolonged impasse increases the likelihood of disappointing employment figures once data releases resume.

Amidst this macro and political uncertainty, digital assets have demonstrated resilience, with Bitcoin rising steadily from its October 17th low near US$104K. Digital asset ETPs recorded +US$573M in net inflows this week, primarily driven by Bitcoin products which attracted +US$528M. Conversely, Ethereum products saw –US$100M in outflows, indicating a selective investor preference for Bitcoin as a relative safe haven and a potential turning point in post-liquidation sentiment.

Key Decisions for Investors

• Investors should assess portfolio positioning for increased monetary easing expectations, considering the implications of 75 basis points of rate cuts by year-end.
• Closely monitor developments in the U.S. government shutdown and its potential impact on forthcoming economic data, particularly employment figures, which could influence market sentiment.
• Evaluate the role of Bitcoin as a non-traditional hedge in current uncertain macro conditions, noting its significant recent inflows and resilience compared to Ethereum.