Macro Monday #185 : ECG R Wave

Crypto

Weekly Review

A three-member appellate panel based in Washington D.C. overturned the decision made by the US Securities and Exchange Commission (SEC), which had previously blocked Grayscale's attempt to launch a Bitcoin ETF directly tied to the cryptocurrency's spot price. This ETF was intended to be created by converting the existing Grayscale Bitcoin Trust (GBTC). Grayscale explained that it couldn't offer the continuous creation and redemption of shares that exchange-traded products (ETPs or ETFs) do. Consequently, shares of Grayscale products have been trading at a discount, sometimes as high as 50%. Grayscale estimates that this discount has resulted in a loss of over $4 billion USD for investors. Notably, the Grayscale Bitcoin Trust manages $17.4 billion USD worth of Bitcoin, representing approximately 3.4% of the total supply of the cryptocurrency. Grayscale argues that the SEC's denial of the conversion into an ETF negatively impacts thousands of institutional investors. This court decision marks a significant legal victory for Grayscale and has broader implications for the entire US cryptocurrency industry. Although the SEC can still choose to challenge the court's ruling, the strong language used by the judge has given some hope to supporters of Grayscale. The SEC's argument centered on the lack of necessary regulatory safeguards in a spot-based Bitcoin ETF to prevent fraudulent activities. However, it's worth noting that in October 2021, the SEC approved several products based on derivative contracts from the CME Exchange. In response, Grayscale filed a lawsuit against the SEC in July 2022, alleging that the agency treated two similar products differently, which contradicted US laws. The unanimous decision by the appellate panel supported Grayscale's claim in this regard.

In other news, the SEC has submitted seven separate filings stating the need for additional time to review the proposed rule change, which would permit the listing of spot Bitcoin ETFs on the stock exchange. This delay has implications for seven applicants, including the world's largest asset manager, BlackRock, as well as VanEck, WiseOrigin, Invesco Galaxy, WisdomTree, Bitwise, and Valkyrie Digital Assets.

According to the filings, the Commission deems it necessary to extend the timeframe for considering the proposed rule change and the associated issues. Despite the proposed rule change being made available for public input on July 19, the SEC has remained within the initial 45-day response period. By opting for an additional 45-day extension, the SEC has postponed the decision date for five applications to October 17. Notably, among the applicants, two have distinct deadlines - one falling a day earlier and the other a day later. Bitwise's deadline is set for October 17, while Valkyrie Digital Assets' deadline is October 19.

Although the dates differ, the language used in all the filings remains consistent, outlining that these proposed dates mark when the SEC anticipates making a decision to "either approve or disapprove, or initiate proceedings to determine whether to disapprove, the proposed rule change."

BTC/USD

1-Day Timeframe

The short lived uptick in BTC price didn’t make it quite to the 50% retracement level. On the bright side the order block is still holding support. I remain cautiously bullish, especially with the RSI creeping up slowly, at least until the 24,770.5$ swing low is taken out for good. However there are no trade opportunities on the daily timeframe except the long mentioned in past updates with an invalidation under the order block and targets of the 50% retracement level and the previous high range of around 30,800 - 31,800$.

ETH/USD

1-Day Timeframe

ETH is holding the 1,625$ level, only wicking into the below liquidity so far. As long as candle closes remain above that level and the RSI continues pushing up while price 

Legacy

Weekly Review

Encouraging signs regarding inflation provided a positive ending for the major stock market indices this week, despite stocks closing out August as their first month in the red since February. Smaller-cap stocks outperformed, closing the substantial year-to-date gap with large-cap counterparts.

Overall, last week appeared to be one where unfavorable economic news was perceived as favorable for stock prices, mainly due to its impact on interest rates. On Tuesday, the S&P 500 Index experienced its most significant one-day gain since June, triggered by unexpected news of a 338,000 drop in job openings for July, reaching their lowest level since March 2001. 

Friday's highly anticipated nonfarm payrolls report seemed to validate a softening labor market. The Labor Department reported that 187,000 jobs were added in August, slightly above consensus expectations, but revisions lowered gains for the previous two months by a total of 110,000. Average hourly earnings also increased by just 0.2% for the month, slightly below expectations. Perhaps most notably, the unemployment rate rose from 3.5% to 3.8%, reaching its highest point since February 2022. As 736,000 people reentered the job market, the labor force participation rate reached 62.8%, its highest level since the start of the pandemic in February 2020.

Despite the slowdown in the labor market, optimism seemed to grow that the economy might avoid a significant downturn in 2023, commonly referred to as the "no landing scenario." On Thursday, the Commerce Department reported a 0.8% surge in personal spending in July, exceeding expectations and surpassing the 0.2% increase in consumer prices during the same month. On Friday, the Institute for Supply Management reported that its measure of manufacturing activity, while still indicating a contraction in the sector, unexpectedly rose to its highest level since February.

Lastly, Atlanta Fed President Bostic appeared to boost sentiment on Thursday during a conference in South Africa, expressing his belief that the current level of interest rates was "appropriately restrictive" and on a path to lower the inflation rate to the Fed's target of around 2.0%. Alongside the inflation and employment data, Bostic's remarks appeared to strengthen the belief that the Fed might not raise rates again this year. The probability of the Fed maintaining its current stance for the rest of the year, as measured by the CME FedWatch tool, notably increased over the week, rising from 44.5% to 59.8%.

S&P 500 

1-Day Timeframe

The ascending channel low held support and provided a base for a bounce back to the 0.786 fib retracement level (4,534.63$), where price stalled on Thursday and Friday. With the bank holiday today in the U.S. we will have to wait at least until Tuesday to see if the market will continue pushing higher from here. First target would be 4,630$. If current resistance persists, a pullback towards at least 4,423$. So far the consolidation within the key retracement zone continues. We could see a lower high made here at 4,534$, if price now drops beneath the swing low of 4,338$, we may be looking at a (temporary) bearish market structure shift. Something to keep an eye on. 

DXY 

1-Day Timeframe

We should get more clarity on where DXY is heading in the coming days, maybe a couple of weeks. Where it stands now, it seems likely that the value will at least challenge the 104.738 level. Until either that, or a drop back under 103,538 and the following reaction my guess is as good as a coinflip.

Weekly Schedule

United States

Monday is a bank holiday so the markets, especially legacy, should be relatively calm. The economic data for the week mainly comprises revisions and lower-tier releases. The exceptions are the ISM services PMI scheduled for Wednesday and jobless claims set for Thursday. It's worth noting that on Thursday, attention will also be drawn to revised productivity and unit labor costs due to the Federal Reserve's keen interest in input costs, particularly wages.

Additionally, several Fed officials are slated to speak during the week, including Collins on Wednesday (coinciding with the release of the Beige Book), Harker, Williams, and Bostic on Thursday, with Bostic addressing the public one more time on Friday.

Eurozone

The key reports for the week encompass final inflation figures, GDP data, PMI readings, regional retail sales figures, surveys, and trade statistics. While these reports are not insignificant, they typically do not trigger significant market movements unless there are substantial revisions in the PMI and CPI reports. The highlight of the week will likely be the statements from some ECB policymakers earlier in the week, including Lagarde, Panetta, Lane, and Schnabel.

Written by: Gunter Lackmann