Navigating economic crosswinds and political currents

This week's market dynamics are set to unfold amidst critical data releases and a high-stakes political debate that could shift the landscape for both traditional and crypto assets. Inflation data on Wednesday is likely to be a steady hand, with markets bracing for minimal surprises. However, the Jobless Claims report on Thursday could hold the key to any significant market moves.

But that's not all. Tonight's debate between Trump and Harris adds a wildcard to the mix, as their face-off could sway the political and economic winds. 

The Trump trade, which has shown a curious correlation with crypto, could once again come into play depending on the outcome of this debate.

Let's dive in

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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This week's data

The key data point this week is the Inflation data on Wednesday. The expectation is for headline Inflation YoY to come in at 2.7%, below last month's 2.9% figure. Core Inflation YoY is expected to come in the same as last month, at 3.2%. Markets are unlikely to materially react to the data unless there is a major upside surprise, which would likely result in risk assets selling down slightly.  

The data the market is more susceptible to react to is the Jobless Claims data on Thursday. Markets are looking closely for signs of the labour market weakening more materially. An upside surprise in Jobless Claims would indicate this. However, the current expectation is for Jobless Claims to come in at 230k, the same as last month's figure. 

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Tonight's debate between Trump and Harris

This evening, we have a debate between Trump and Harris. Currently, polls have the election odds relatively close in the swing states, with less than a million people likely to decide the swing states' votes. Trump and Harris will be looking to appeal to these people this evening.

The last debate (between Trump and Biden) was very consequential, with Biden stepping down after an abysmal performance. If Trump is to "win" tonight's debate, that'll increase his odds of winning, and we may see a slight return on the Trump trade. This would see crypto assets get a bid this evening - if Trump comes out of it on top. 

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Labour market data not enough for 50bps in September

Last week, we had the release of the labour market data. Non-farm payrolls came in at 142k while the Unemployment Rate ticked lower to 4.2% from 4.3% (this was more due to rounding up and down in the figures). 142k jobs added is positive; therefore, the markets have dialled back their expectations for a 50bps Interest Rate cut in September to now just 29%. However, 113 bps of cuts are priced in for 2024, meaning a 50bps cut in November (post-election) is being priced in. 

However, if the economic data continues to hold up—growth remains positive and above 2%, whilst the labour market doesn't weaken much from here—then 113bps of cuts might be too much for 2024, and the Fed might just lean into doing 25bps x 3 in 2024, so a total of just 75bps. This would result in Bond Yields rebounding up slightly, particularly the 2Y, whilst the Dollar Index ($DXY) would also move higher in the short term. 

 

US 2Y Bond Yield:

$DXY:

This would likely result in risk assets (equities and crypto) continuing to struggle in the coming month or so. 

BTC:

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Cryptonary's take

Our expectation over the coming weeks, maybe all the way up until late October, is that the equity market might be vulnerable to further downside. 

Crypto has had substantial downside already, so it may just be range-bound in this lower range between $52k and $58k. Yesterday, as we expected and called for in our Market Direction post (although it happened very quickly), BTC tagged the $58k area and, for now, has rejected from there. 

We're now expecting price to pull back from here and potentially consolidate, although we're open to the view that if Trump trounces Kamala this evening, we can see crypto push up slightly further from here. But we don't see a major upside from current price levels in the immediate term. 

Therefore, we're taking action to remain in spot positions. I (Tom) have some trading wallets, which are solely in cash and have been for some time. This is despite the fact that I still hold all the spot positions in the Barbell portfolio (BTC, ETH, SOL, WIF, and POPCAT). 

Now, these trading wallets, I'll look to put that USDT to work if prices break down, i.e., if there is a quick move for BTC sub $52k, say down to as low as $48k (I'm not sure we really go lower than that). I want to remain exposed but also have some USDT to take advantage of any panic we may get, not that we're expecting any major panic on the horizon.