🔥 Fed's Powell: Faster Rate Cuts Off the Table?

Good Morning!

The economic plot thickens as European inflation figures roll in. Germany's September inflation hit a three-year low at 1.8%, setting the stage for potential ECB rate cuts. With France, Italy, and Spain following suit, markets are practically salivating over an October rate cut. ECB President Lagarde's nod to this trend has traders doubling down on their bets. Meanwhile, the dollar's losing its mojo as global inflation cools. The euro's flirting with $1.12, while the yen and yuan are stealing the forex spotlight. Stateside, Powell's not rushing to slash rates, but upcoming data could flip that script.

In today’s email:

• FedWatch: Powell in no rush to cut rates further

• Bitcoin: Bitcoin back below $64k failing to break higher post Powell’s comments

• Japan: Lowering capital gains on crypto?

• Gold: Goldman Sachs ups forecast to $2900/oz 🚀

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THE BIG IDEA

Fed Chair Powell hints at a return to smaller rate cuts, signaling confidence in the economy's strength

In a plot twist that's got Wall Street buzzing, Fed Chair Jay Powell just dropped some serious hints about the central bank's next move.

Fresh off the heels of March's surprise half-point rate cut, Powell's now singing a different tune. The Fed's not in any rush to slash rates further. Instead, they're eyeing a return to their classic quarter-point cut playbook come November. It's like they're switching from espresso shots to a slow-drip coffee - still caffeinated, but with a gentler kick.

Why the change of heart? Powell's feeling pretty good about the U.S. economy's report card. Inflation's cooling off, the job market's still flexing, and economic growth is chugging along nicely. It's the economic equivalent of hitting the sweet spot in your favorite recliner - comfortable, but not too cushy.

But here's where it gets interesting

The November decision lands just two days after the presidential election. Talk about timing! Powell insists they'll be looking at the "totality" of the data, not the political tea leaves. But you can bet your bottom dollar that every economic indicator between now and then will be under a microscope.

Looking ahead, the Fed's crystal ball shows a gradual descent in rates over the next couple of years. We're talking about potentially landing around 3% by the end of 2026. It's like a slow-motion skydive for interest rates.

The takeaway? Powell and crew are playing it cool, aiming for that Goldilocks economy - not too hot, not too cold. They're walking a tightrope between keeping inflation in check and avoiding a painful spike in unemployment. It's a high-stakes balancing act, and all eyes are on the Fed to see if they can stick the landing.

MARKETS AT A GLANCE

TOP NEWS

China's stock market surge draws comparisons to the 2015 bubble, but key differences emerge

China's stock market is on a tear, but don't call it 2015 2.0 just yet. While Monday's trading volume surpassed 2015 highs, today's rally looks different. Leverage is lower, foreign institutional allocation has dipped, and the yuan's stronger against the dollar. Beijing's policy signals are more coordinated this time, but economic headwinds persist. The billion-yuan question: Can earnings growth catch up to justify the hype?

Berkshire Hathaway plans a new yen bond sale, sparking speculation about increased investments in Japanese trading houses

Buffett's Berkshire is gearing up for its second yen bond sale this year, sending Japanese trading house stocks soaring. The move fuels speculation that the Oracle of Omaha is looking to beef up his stakes in these firms. With Berkshire's track record of financing Japanese investments through yen bonds, market watchers are on high alert. The news is giving a nice boost to trading house shares, outpacing the broader Topix index.

Global debt issuance hits record $600 billion in September, driven by pre-election rush and favorable market conditions

September saw a tsunami of debt issuance, with borrowers worldwide raising a record-smashing $600 billion. U.S. high-grade bonds, European AT1s, and Chinese offshore yuan notes all hit new highs. Companies are racing to secure funds before potential election volatility and to capitalize on tight spreads. This borrowing bonanza spans blue-chip firms, leveraged loans, and even structured finance markets. While some expect a slowdown in October, the pace will likely hinge on economic data.

CRYPTO

Bitcoin ends September with gains despite last-minute dip, but breakout may wait until after U.S. elections

Despite a 3.7% dip on the last day, Bitcoin's set to close September up 7% – its best performance since 2013. October's historically strong for crypto, but options traders are eyeing post-election rallies. The market's split: some see potential for an "Uptober" surprise, while others point to typical post-halving consolidation lasting into November. Powell's comments on gradual rate cuts added to the day's volatility across crypto and traditional markets.

Crypto firms increasingly consider geofencing to navigate U.S. regulatory uncertainty

Amid tightening U.S. crypto regulations, founders are eyeing geofencing as a compliance strategy. This "extreme solution" involves blocking users from certain jurisdictions, effectively abandoning the U.S. market. Notable platforms like Binance, Eigenlayer, and Orca have already implemented geofencing measures. While it helps maintain compliance, experts warn it's a costly approach. The trend highlights the growing regulatory pressures faced by crypto companies in the U.S.

EigenLayer has lifted transfer restrictions on its EIGEN token, allowing it to be traded across various exchanges

Currently priced at around $4.28, the token's fully diluted valuation (FDV) stands at $7.1 billion, based on a total supply of 1.67 billion tokens. EigenLayer's unique platform enables users to stake Ether for securing third-party networks, with over $12 billion in total value locked, though down from its $20 billion peak earlier this year.

Japan’s Financial Services Agency (FSA) is considering lowering the capital gains tax on cryptocurrencies as part of a regulatory review set to conclude by 2025

Currently, crypto gains are taxed as high as 55%, but reclassifying digital assets under the Financial Instruments and Exchange Act could reduce this to 20%, aligning crypto with stocks and other financial assets. The review may also pave the way for exchange-traded funds (ETFs) containing digital tokens, further integrating crypto into Japan’s financial system.

GOLD

Goldman Sachs has raised its gold price forecast to $2,900 per ounce for early 2025, up from $2,700, citing rising ETF flows, central bank purchases, and interest rate cuts in both the West and China

The bank also adjusted its 2024 average gold price estimate to $2,395 per ounce. With strong institutional demand, particularly from China, and continued geopolitical and economic uncertainties, Goldman anticipates that lower global interest rates will drive further increases in gold prices. The metal has already reached all-time highs of $2,685 per ounce this quarter.

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