The market in December was "surprisingly good", and both the stock market and the currency circle were performing a cheerful money-making effect. The market is relatively optimistic about the Federal Reserve's interest rate cut, the U.S. economy has cooled significantly, and South Korea's export indicators allude to global economic recovery; the stock markets of the United States, India, Japan, France, and Germany have successively hit record highs; the price of Bitcoin has exceeded $44,000, and the United States and Hong Kong’s virtual asset ETFs are “on the horizon” and everything seems to be moving in a brighter direction.
In the early morning of December 14th, Beijing time, according to the latest minutes of the Federal Open Market Committee (FOMC) monetary policy meeting of the Federal Reserve, the Federal Reserve decided to slow down the pace of interest rate hikes in December and maintain the target range of the federal funds rate between 5.25% and 5.50%. As soon as the news came out, the market cheered and the three major U.S. stock indexes all rose sharply.
In fact, judging from the new economic data released by the United States in December, it is very necessary to suspend interest rate hikes. The United States released a number of important economic data on December 21, including a 4.9% GDP growth in the third quarter (5.2% expected) and a Philadelphia Fed manufacturing index of -10.5 (-3.0 expected), both below expectations. Judging from the two major household sector inflation indicators of CPI and PCE in November, CPI increased by 3.1% year-on-year and core CPI increased by 4.0% year-on-year, both in line with market expectations; the core PCE price index rose by 3.2% year-on-year, the smallest increase since April 2021, lower than the estimated 3.3%. GDP and manufacturing have been affected to a certain extent and are lower than expected. At the same time, inflation data are in line with or slightly lower than expectations. Therefore, no matter from which aspect, there is no need to continue to raise interest rates.
The December data once again confirmed the obvious nature of the suspension of interest rate hikes. How much and when the interest rate will be cut has become the most concerned issue in the market. Judging from the current dot plot, the average interest rate expectation in 2024 is around 4.6%, which is still a considerable drop compared to the current 5.25% to 5.5%.
As for when to cut interest rates, according to CME FedWatch, the probability of cutting interest rates to below 5.25% in March 2024 is 75.6%, the probability of interest rates returning to "below 5" in May is 73.6%, and there is a 66.2% probability of reaching 4.5 in the first half of the year. Interest rates around %. Therefore, the market is still relatively optimistic at present and believes that a significant interest rate cut may be achieved in the first half of the year.
In fact, looking around the world, the economies of many countries have shown signs of improvement: the Japanese economy is making up for the "lost 30 years", and both inflation and hourly wages have emerged from the previous "unchanged" dilemma; and South Korea, as the "canary" of the global economy, has reversed the downward trend in exports as early as October. The latest export data for the first 20 days of December showed a year-on-year growth of 13%, and the growth trend is becoming more and more fierce, reflecting the recovery of the global market.
On December 13, U.S. time, U.S. stocks surged, with the Dow Jones Industrial Average hitting a record high. This month, U.S. stocks continued the bull market trend in November and continued to squeeze out. It is worth noting that after the U.S. announced its third-quarter GDP on the 21st, although it was lower than expected, U.S. stocks still rose that day. Obviously, the core factor affecting U.S. stocks at present is not economic fundamentals, but expectations of interest rate cuts. The slightly lower-than-expected economy has greatly promoted expectations of interest rate cuts, which in turn prompted U.S. stock investors to expect increased liquidity in the future.
Abundant liquidity is a direct factor in any market's rise. A Bank of America survey showed that the expectation of a rate cut in December has driven a massive influx of funds into the U.S. stock market, with the cash allocation ratio falling to a two-year low. The optimistic expectations of global investors have brought extremely abundant liquidity to the U.S. stock market, which is why the U.S. stock market continues to soar.
In addition to the US stock market, the Indian stock market can be said to be a rising star in the market in recent days. The Sensex30 index in Mumbai, India, broke through 70,000 points on December 11, and has now stabilized at 70,000 and exceeded 71,000, becoming the seventh largest stock market in the world.
In recent days, India has become the first choice for global investors to invest in emerging markets. India's economic growth this year leads the world's major economies, and its strong economic fundamentals provide investors with full confidence. In addition, Nikkei 225 hit a record high in November, and Germany's DAX and France's CAC40 also hit record highs this month.
However, although the market sentiment is high at present, we should not be overly optimistic. At present, due to the impact of the expectation of interest rate cuts, the US dollar index continues to weaken. When the US dollar turns from a strong currency to a weak one, the attractiveness of US dollar assets will also decline. In the future, we should pay attention to the dynamic game between the strength of the US dollar and liquidity.
In early December, Bitcoin once again soared and successfully broke through $44,000; MicroStrategy purchased more than 14,000 Bitcoins this month, increasing its total Bitcoin holdings to more than $8 billion. Ethereum's highest price also exceeded $2,400. Subsequently, the two major currencies entered a sideways trend, with Bitcoin prices fluctuating between 40,000 USD and 44,000 USD, and Ethereum fluctuating between 2,100 USD and 2,400 USD.
Although the market rose first and then went sideways, investors’ confidence in the future market has not diminished. From the perspective of the negative premium of BTC in Grayscale Fund, the negative premium was reduced to less than 10% in late November and continued to shrink, currently between -6% and -5%.
Although 90% of Bitcoin is currently profitable, investors remain confident due to the continuous stimulation of good news.
News about spot ETFs is even more frequent. On the 21st of this month, Grayscale, BlackRock, Valkyrie, ARK Invest/21Shares, Franklin, and Fidelity all met with the SEC to discuss Bitcoin spot ETFs.
At present, the issuers of various Bitcoin spot ETFs have held more than 30 meetings with the U.S. Securities and Exchange Commission (SEC). The previous discussions focused on the issue of Bitcoin custody, but now the focus has shifted to the generation and redemption methods of ETF shares. The SEC requires that before December 31, ETF applicants need to update AP information and change the redemption method in the application to "cash redemption", because in this way only the issuer will handle Bitcoin, avoiding the situation where unregistered broker subsidiaries handle Bitcoin.
Although institutions generally hope to adopt the physical redemption method, they have chosen to compromise in the face of the SEC's requirements. At present, Pando Asset, BlackRock, Valkyrie, Grayscale, Galaxy and other institutions have almost all modified their documents to "only in cash". It seems that the giants are "impatient" to issue ETFs and are willing to agree to any conditions as long as they can issue them.
As institutional giants have chosen to compromise, the market is also very optimistic about the date of approval of the first batch of ETFs: Bloomberg ETF analyst Eric Balchunas also mentioned that AP agreement + cash creation = approval. In other words, these two steps should be the last steps before approval, so many people speculate that the first batch of applicants will be approved around January 10. But no matter what, things have come to this point, the arrow is on the string and has to be fired. Approval only needs the "final push", it is just a matter of time.
While good news came from the United States, Hong Kong also received good news: on December 22, the Hong Kong Securities and Futures Commission issued the "Joint Circular on Virtual Asset-Related Activities of Intermediaries" and the "Circular on Securities and Futures Commission-Approved Funds Investing in Virtual Assets", and stated that it was "ready to accept applications for approval of virtual asset spot ETFs."
The two circulars released this time explain in detail the Hong Kong government's requirements for virtual asset spot ETFs. From issuer qualifications to underlying asset requirements, from trading, subscription and redemption, custody to investment strategies, the circulars have detailed regulations, fully demonstrating that the Hong Kong government is fully prepared for the arrival of virtual asset ETFs. "Everything is ready, only the east wind is missing", the regulatory attitude has been made clear, and the remaining issues are mainly some technical details.
It is worth noting that unlike the United States, which only allows "cash redemption", Hong Kong allows both cash and physical assets, which makes Hong Kong's virtual asset ETF more advantageous than that of the United States.
The market continues to perform well in November. The world has experienced the impact of the epidemic and is now on the track of recovery. It is not surprising that such a money-making effect has appeared. However, there is no market in the world that only rises and never falls. Whether there will be an economic recession during the interest rate cut in the United States next year and whether the US dollar will continue to weaken are also worthy of attention and consideration; the sentiment in the crypto market is still high, and the spot ETFs in the United States and Hong Kong are "all ready except for the east wind", and the era of large-scale institutional entry into virtual assets is quietly approaching.
