ETH ETFs Launch as TradFi Awaits Rate Cut
ETH ETFs Launch as TradFi Awaits Rate Cut
Digital Asset Market: Ether (ETH) price rises above $3,500 ahead of the opening of the U.S.-based spot ETFs, which could potentially see muted inflows in their first few weeks. Concerns exist about potential selling pressure from Grayscale's $9 billion ETH Trust, which could counteract the positive effects of new inflows and make ETH an inflationary asset again. Market onlookers are debating if the ETH ETFs will perform better than Bitcoin ETFs, with estimates ranging from $3 billion to $6 billion in inflow within the first half-year. Eight issuers, including traditional fund issuers and crypto-specific companies, received approval for their Ether ETFs. These ETFs are seen as a step towards increased integration of digital assets into mainstream finance. ETH is seen as a bet on the growth of blockchain and crypto more broadly. The ether ETFs are expected to be smaller than bitcoin ETFs due to the relative size of the two markets and its potential unfamiliarity with investors. The SEC's decision to allow these funds has been criticized, but some investors and advisers may make small allocations as a diversification play without taking on too much risk.
Macro Economics: The International Monetary Fund has upgraded its growth forecast for the UK economy in 2024, boosting the country's new Labour government. The new forecast of 0.7% is higher than previous estimates and follows similar upgrades from Goldman Sachs and Deutsche Bank. The IMF also raised its forecasts for the eurozone, Spain, and China but lowered its forecast for the US. The organization warns of increasing inflation risks and uncertainty in trade policy. Overall, global growth and world trade have strengthened, but the services sector is still a concern.
For the Eurozone, Goldman Sachs economists say that if Donald Trump wins the presidential election, it could have "profound implications" for the eurozone’s economy. They estimate a 1% decrease in GDP and a 0.1% increase in inflation. Factors impacting Europe include trade policy uncertainty, added defense and security pressures, and spillover effects from U.S. domestic policies. There are concerns about Trump cutting U.S. aid for Ukraine and reducing support for NATO, as well as the potential for tax cuts and decreased regulation in the U.S. to have a limited impact through financial spillovers. The likelihood of a second Trump presidency has already risen, and market volatility following an attempted assassination attempt at a rally on July 13th could further impact Europe's economy.Equities: US stocks are rising as investors digest early earnings reports and anticipate Big Tech results later in the day. The S&P 500 and Nasdaq are up, with the Dow Jones also showing gains. The market is closely watching tech giants such as Alphabet and Tesla for signs of continued growth. Tech stocks have rebounded after a drop last week, while election-related volatility has eased in the past two days. The financial sector is leading the market today, with regional banks rallying. Spotify reported strong quarterly earnings, with record profit, gross margin, and free cash flow. The company's recent efficiency strategy, including price hikes and cost-cutting measures, helped drive its performance. Kamala Harris's securing delegate backing has helped calm any remaining nerves about Joe Biden's withdrawal from the presidential race.
The Fed and US Treasury: This week has been quiet on the Fed front, with the Financial Markets pricing a September rate cut with more than 95% probability. Federal Reserve Chair Jerome Powell stated last week that the central bank will not wait for inflation to reach its target of 2% before cutting interest rates. Powell explained that "long and variable lags" mean waiting until inflation hits 2%, which could lead to a "too late" situation, as tightening policies may push inflation below 2%. Instead, the Fed is looking for stronger indications that inflation will return to 2% before making any decisions. Powell also stated that he does not believe a "hard landing" for the economy is likely. However, he clarified that his remarks were not meant to signal a timeline for rate cuts and jokingly mentioned that he often receives unsolicited advice to "cut rates".
In other news, President Donald Trump said that if re-elected for a second term, he would allow Jerome Powell to complete his term as Federal Reserve chairman until 2028. This is a change from Trump's previous criticisms of Powell and the Fed's interest rate policies. Trump had previously expressed that he would not reappoint Powell to lead the FRB but now says he would "let him serve it out" if he felt Powell was doing the right thing. Powell's term was set to end in 2022, and Biden has nominated him for a second four-year term.Geopolitical: Vice President Kamala Harris launched her presidential campaign with a rally in Milwaukee on Tuesday, seeking to prove to hesitant Democrats that she has what it takes to beat Donald Trump. However, a new poll by Forbes/HarrisX reveals that Harris is already facing an uphill battle, with Trump leading her by a significant 11 points among likely voters. This is even worse than Biden's 10-point deficit against Trump in the same survey. Harris's job approval rating is also at a low 38%, matching Biden's rating. With few single-state polls available, it remains to be seen if Harris can close the gap and sway undecided voters.
In other news, US Secret Service Director Kimberly Cheatle has resigned following a contentious session with House lawmakers over security failures during the attempted assassination of Donald Trump. Her resignation came after a bipartisan grilling and a decision by the Department of Justice to form an independent review panel. It was revealed that the Secret Service had no recordings of radio communications during the event, and Cheatle had used encrypted apps on her phone for official business. Anybody who saw the proceedings would be deeply disappointed.
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Both BTC and ETH pulled back a bit today, which is unsurprising. The main contributors are profit-taking from those who are positioned for this day, coupled with some pressure from Grayscale’s ETH Trust. We expect this pullback to be temporary and short-lived. Billions of additional capital are expected to flow into the ETFs, driven by investors seeking more diversification in their crypto portfolios. The selling pressure from Grayscale ETH Trust may continue for a few days, offsetting part of the ETF inflows.
Financial markets are generally quiet today as investors eagerly await financial results from some tech giants. These results are anticipated to meet or exceed expectations, which could further boost market sentiment. With the Federal Reserve poised to cut rates in September, the only remaining questions are the extent and frequency of these cuts. We foresee 3-4 rate cuts by mid-summer 2025, which would significantly stimulate the economy. Given this backdrop, along with the nearly determined outcome of the presidential elections, there appear to be no significant risks on the horizon for the coming weeks. This environment will likely encourage continued investor confidence and stability in the market.
Volatility is expected to stay low and continue to decline. The VIX, which had risen to 16.5 following the attempted assassination of Trump, is now expected to decrease to around the 13 range. This anticipated decrease in volatility, combined with positive financial results and the prospect of rate cuts, suggests a period of relative calm ahead for the markets. Investors can look for a more stable environment, allowing for strategic portfolio adjustments and long-term planning. The reduction in volatility is likely to bolster investor sentiment further, reinforcing the optimistic outlook for both the equity and crypto markets.
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