🧐 3% Neutral Rate: The New Normal or a Market Mirage?

Good Morning!

Nvidia's making a bold move to snatch Apple's crown as the world's most valuable company. Wall Street's on fire, with the S&P 500 and Dow Jones breaking records. The Nikkei's back above 40,000, and Europe's markets are catching the buzz. Meanwhile, bank earnings are rolling in, and the ECB's gearing up for a potential rate cut.

In today’s email:

• FedWatch: Expect higher neutral rates going forward

• Bitcoin: Should leg higher if we decisively break $66k

• Tether: Coming for TradFi and Commodities?

• Gold: Central Banks keep piling in 

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THE BIG IDEA

The bond market's landscape is shifting, with yield curves steepening and neutral rates inching up, presenting new opportunities for savvy investors

The Fed's rate-cutting escapade has begun, but the real drama is unfolding in the broader interest rate arena. We're not just asking "when" anymore; we're diving into the juicy "where" of interest rates.

Enter R-star, the Goldilocks of interest rates – not too stimulating, not too restrictive, just right for economic stability. But don't get too comfortable; this elusive star is more of a moving target than a fixed point in the financial cosmos.

Remember 2018? When inflation hit that sweet 2% spot and employment was booming? The Fed thought 0.5% was the new cool kid on the block for real rates. Fast forward to today, and we're eyeing a 3% federal funds rate once the economic dust settles.

But here's where it gets spicy

The yield curve is prepping for a steeper climb. Why? Because Uncle Sam's debt buffet is still open, and bond investors are demanding a bigger slice of the pie to keep coming back for more.

The term premium – that extra sweetener for holding debt longer – is making a comeback. Some number crunchers peg it at 0.85 percentage points, while others see it as flat as a pancake. But one thing's for sure: it's likely heading north.

What does this mean for you? Higher neutral rates are on the horizon, but the real action will be in the yield curve's slope, not just the Fed's magic number.

The silver lining? Fixed income might just become the portfolio superhero we've been waiting for. It'll reward you in the good times and swoop in to save the day when the economy hits a rough patch, given the hedging value of bonds. So, keep your eyes on the yield curve – it might just be your ticket to financial finesse in these turbulent times.

MARKETS AT A GLANCE

TOP NEWS

Nvidia's record high sparks Asian semiconductor stock rally, reflecting AI boom's global impact

Nvidia's blazing hot streak is lighting up the Asian chip market. After hitting a record high and dethroning Microsoft as Wall Street's second-most valuable company, Nvidia's sending shockwaves across the Pacific. SK Hynix, Samsung, TSMC, and Foxconn are all riding the AI wave, with shares surging. Even SoftBank's getting a piece of the action. With Big Tech's earnings season on the horizon, this semiconductor party might just be getting started.

'Black Swan' author Nassim Taleb warns of potential market collapse due to multiple risk factors

Nassim Taleb, the 'Black Swan' guru, is sounding the alarm. He's eyeing a potential market meltdown, calling today's environment the most fragile in decades. Taleb's worried cocktail includes "crazy" stock prices, confusing economic signals, and debt levels higher than a kite. With AI hype driving a narrow rally and global economic ties tighter than ever, he's betting on hedging against a crash. Is it time to batten down the hatches?

European stocks near record highs, buoyed by Wall Street's tech rally and positive earnings reports

Europe's catching Wall Street's bullish fever. The Stoxx 600 is flirting with all-time highs, powered by tech stocks riding Nvidia's coattails. Ericsson's soaring after smashing earnings expectations, while energy stocks are taking a breather. Despite geopolitical jitters, investors are all smiles about China's stimulus and 2025's growth prospects. With LVMH kicking off earnings season and the ECB potentially slashing rates, Europe's just warming up!

CRYPTO

Bitcoin's 'three-line break' chart signals potential for new record highs, despite daily chart's sideways trend

While Bitcoin's daily chart might look as exciting as watching paint dry, the 'three-line break' chart is painting a different picture. This lesser-known tool, which cuts through the noise, is flashing bullish signals that could send BTC soaring past its previous $73K peak. Monday's 5% jump might just be the appetizer. But before you mortgage the house, remember: the stubborn $70K resistance and the risk of a false breakout could still throw a wrench in the works.

Sui becomes the top-performing digital asset of 2024, up 185% YTD

Layer-1 blockchain Sui has surged over 185% this year, outperforming major assets like Bitcoin and Toncoin. Its growth is driven by an expanding DeFi ecosystem, rising stablecoin activity, and institutional interest, including Grayscale’s Sui investment trust. The network's weekly DEX volumes and total value locked have both hit $1.45 billion, fueled by memecoin trading and USDC integration. Sui’s object-based architecture gives it an edge over rivals like Solana and Ethereum, positioning it as a promising contender in the Layer-1 space.

Tether explores commodities trading and TradFi, separate from its stablecoin operations

Tether CEO Paolo Ardoino announced that the company is exploring commodities trading and traditional finance (TradFi) opportunities through its investment arm, distinct from its stablecoin reserves. Tether's diversification follows its record $5.2 billion profit in H1 2024 and past investments, such as a $200 million stake in Blackrock Neurotech. Ardoino emphasized that these new ventures will not impact the stability or reserves of Tether's USDT stablecoin.

Trump-backed World Liberty Financial claims 100K signups before token sale

Donald Trump's crypto project, World Liberty Financial, reported over 100,000 signups ahead of its Oct. 15 WLFI token launch. The ERC-20 token will serve as the governance asset for the DeFi platform, which will offer lending, borrowing, and liquidity pool features. Paxos co-founder Rich Teo joins as stablecoin and payments lead. The project aims to raise $300 million, valuing it at $1.5 billion, with 63% of tokens allocated for public sale. The platform will launch on Ethereum, using Aave's infrastructure for its DeFi services.

GOLD

Central bankers signal growing interest in boosting gold reserves amid uncertainty

In a rare move, central bank officials from Mexico, Mongolia, and the Czech Republic expressed intentions to increase gold holdings, citing factors like geopolitical tensions, low interest rates, and economic uncertainty. Speaking at a London Bullion Market Association conference, they indicated that gold’s share in their reserves could rise as it continues its 25% rally in 2024. The surge in gold prices has been driven by unprecedented central bank purchases, with the average central bank holding 15% of its reserves in precious metals.

DAILY ECONOMIC CALENDAR (ET)

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