Standard Chartered anticipates ETH to reach $4,000 upon ETF approval
Is this milestone in sight?
February 5, 2024
Global Macro Highlights
⏸️ Fed holds rates steady at 5.25% - 5.5%
📉 US regional banks tumble for second straight day on NYCB woes
➕ U.S. economy added 353,000 jobs in January, much better than expected
💼 US worker productivity strong in fourth quarter, rose at a 3.2% annualised rate
🇬🇧 Bank of England holds interest rates at 5.25%
While markets kicked the week off in fairly benign fashion (in part thanks to the US Treasury Quarterly Refinancing Announcement showing a reduction in financing requirements), things took a turn quite quickly as we entered a very busy week. In the Wednesday pre-market session, New York Community Bancorp (NYCB) announced earnings far below estimates (Earnings Per Share of $-0.36 vs. $0.266 in Q3 ‘23), while also slashing dividends and lowering their earnings guidance.
Some might remember NYCB as the one that bought over the assets of the fallen Signature Bank during last year’s banking crisis. They acquired most of Signature’s deposits and just over a third of its assets including nearly $13b in loans, in a deal arranged by the Federal Deposit Insurance Corp.
Unfortunately, it seems that NYCB had taken on more than it could chew in this case. Post announcement, NYCB opened the Wednesday trading session down nearly 40% at $5.96, and caused a rally in US treasuries and Gold on the day as fears of another banking crisis returned.
Several hours later, the Federal Reserve kept rates unchanged as expected. However, Chair Jerome Powell dashed all hopes for a series of rapid rate cuts at the press conference. He said that the FOMC had not began to consider reducing rates, and remained upbeat that the current policy was doing its work to bring inflation back down. Despite the more hawkish FOMC stance, treasury yields remained heavy below the key 4% level, weighed down by the ongoing drama with the US regional banks. US equity barometers also fell over the period, with the SPX500 closing the day down 1.6% at 4,870 on Wednesday.
From there though, things started to tear slightly. Friday’s Nonfarm Payrolls (NFP) report beat estimates handily, registering 353,000 new hires in January, surpassing the market expectation of 180,000 by a wide margin. There were also subsequent upward revisions in November and December, to the tune of some 126,000, which also bucked the trend of lower revisions that started nearly 6 months prior. That woke the treasury market up, with 10Y yields rising nearly 12 bps to 4% and sending the Dollar higher across the board (USD/JPY closed the day up 1.3% to 148.31 Yen).
It was a slightly different story for US equity barometers though. Despite the meltdown in regional banks, the Magnificent 7 continued to support the large cap indices following stellar earnings reports from their constituents. Meta led the way as the Friday trading session got underway, opening some 20% higher (trading around $475; at its lows in 2022, the stock fell to as low as $90), adding nearly $200 billion to its market cap and reversing any damage done by the NFP print on the SPX500 and Nasdaq 100. As seems to be the norm now, the SPX500 closed the week at a new all time high of 4,958.
Malaysia Market Highlights
🇲🇾 Ringgit opens higher against US dollar after the US Federal Reserve decided to maintain its interest rate at 5.5%
The Malaysian Bond Market benefitted from the constructive developments for rates in Developed Markets, with the lower expected rate environment prompting gains across the government yield curve.
This had positive knock-on effects to corporate bonds in general, and specifically for the Halogen Shariah Ringgit Income Fund as well.
For the week, USD/MYR had been relatively stable, trading within a tight range of 4.7165/4.7305 range. Unfortunately, the Ringgit has hit a new all time high against our southern neighbours, with SGD/MYR briefly trading near 3.54 on Friday. With a strengthening Dollar after Non-Farm Payroll, we can probably expect further weakness in our local currency.
Crypto Market Highlights
📈 Standard Chartered Predicts SEC Will Approve Ethereum Spot ETF in May, Forecasts ETH Surge to $4K
🏦 Bitcoin Steady at $43K as Tumbling U.S. Regional Bank Stocks Reignite Worries
📊 BlackRock and ProShares' Bitcoin ETFs Surpassed GBTC's Daily Volumes
⚙️ Ethereum's 'Dencun' Upgrade Goes Live on Second Testnet, With Just One Remaining
Following the weekend’s short covering rally, Bitcoin traded tightly within the $42,000 to $44,000 range. Bitcoin had been attempting to push past the $44,000 level over the week, where it had previously experienced some decent correlation into January’s ETF announcement. That area now proves to be a resistance zone, and unfortunately BTC has yet to have the juice to get through it.
The range in Bitcoin has been extremely tight. Similar to what we saw during 2023’s regional bank crisis, Bitcoin and other crypto majors enjoyed a quick spike over the news, but it was relatively short lived (going from $42,800 to $43,600 and subsequently trading below $43,000 again). Crypto was relatively steady in the face of the FOMC announcement, in line with other traditional markets. As was the case with TradFi though, the NFP release did have an impact on crypto. Bitcoin fell some 1% over the event, but recovered in line with higher US equities to close at $43,200 on Friday.
After last week’s soggy performance, Ether got a bit of a boost from another Standard Chartered Bank report opining on their expectations for ETH’s price upon an ETF approval. The report expected that such an approval would take place by May 2024, and that Ether would be able to hit the $4,000 mark on such flows. For the week, ETH slightly outperformed by 0.77% BTC but continues to remain in a relatively tight range too.
What we are monitoring for the week ahead
Looking Ahead - Our Insights
Last Friday’s NFP print drove home the ‘higher for longer’ narrative once more in a way that the FOMC meeting could not. Fed Fund Futures (FFF) entered Wednesday night implying a somewhat even split on March rate cut odds. Even after Powell’s press conference, FFF still implied something closer to 40% odds for a cut. At Friday’s close, those odds fell to 20%.
The headline numbers are pretty strong, and US growth prospects are rosy for Q1 ‘24, with the Atlanta Fed GDP Nowcast modelling it at 4.2% YoY. Though a deeper dive might unveil some caveats (lower overall hours worked, seasonal adjustments etc), the market reaction to the headline could be persistent. Overall though, Friday’s market reaction traded very much at odds to the usual correlations. US Rates and the Dollar trade higher, but commodities have since given back their gains. And of course, stocks continued to trade higher, and the divergence between small and large cap stocks continued to increase.
The Russell 2000 continues to languish despite new all-time-high in large caps - not something you’d expect if the US economy really was booming. Heck, even the divergence between the M7 and the rest of the S&P 500 is becoming a concern. Last Friday was one of the few times that the index closed 1% higher when the majority of its constituents declined. And on balance, 1-month forward returns from there were negative.
Overall, there are inconsistencies with the usual correlations that drive cross asset prices. Next week’s Fed speaker calendar does include mostly neutral or hawkish members (with Michelle Bowman being the most hawkish). We could see some further hawkish rhetoric there, but barring any surprises, it’s probably safe to say that some momentum in large cap stocks will persist, and these lofty levels will be supported in the US large cap indices.
We’ll also continue to watch the NYCB saga with interest. As of last Friday, prices had stabilised somewhat, though the SPDR S&P Regional Banking ETF, KRE continued to close lower. For the most part, analysts have noted that the troubles with NYCB were idiosyncratic as opposed to structural to the banking system. Higher rates will likely weigh on the sector for a while, but should taper off.
Last year though, crypto showed remarkable anti-correlation to US markets in March, at the height of the regional banking crisis. While the knee jerk reaction last week was to buy crypto majors like Bitcoin, those gains were short lived. Though this episode has seen relatively little contagion and fear compared to the last, we also do think that Bitcoin will start to gain a little more correlation with TradFi markets again - as would be expected with major institutional adoption. It should still have a degree of diversifying power in a portfolio, but as passive flows start to allocate to the space, those same passive flows are usually more correlated to traditional asset flows.
In terms of price action, Bitcoin’s consolidation in the $42,000 - $44,000 range looks fairly healthy for now. Volatility remains low, and we even saw a reduction in outstanding CME open interest levels (now at $4.47b and barely edging out Binance at $4.32b). There is still a possibility for another wave lower to materialise (which would comply with Elliott Wave theory) down to the $35,000 region, which would be a healthy development for Bitcoin.
For now though, there’s no immediate catalyst to drive Bitcoin out of this range. After the initial frenzy, ETF volumes have since died down. For the week though, net inflows were positive into the system. Blackrock’s IBIT ETF even outdid GBTC in terms of daily volume, for the first time since launch. GBTC outflows slowing does help stabilise the system slightly, though the risk is still tilted to the downside. After all, slowing volumes for the system make it easier for one large outflow to hit the market and make a large impact.
While the Standard Chartered Bank report helped stem the slide in ETH, we still have yet to see the pair catch a strong bid. The $2,400 level will be important to watch to the topside, while support still sits strong at $2,160. Positioning in ETH futures products still looks fairly benign, especially on the institutional side (CME OI stems at a mere 600 million).
On another note, our team is taking some time off next week for the Chinese New Year celebrations. We wish you a festive and prosperous Chinese New Year and look forward to reconnecting soon!
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