October 2 REX Wire Market Outlook

A US government shutdown has been narrowly averted. At almost the last hour possible, Democrats and Republicans reached a temporary deal that would keep the lights on until mid-November. It did not include agreement about one of the major sticking points, funding for Ukraine. It also remains to be seen whether hardline Republicans will be successful in their bid to oust House Speaker Kevin McCarthy, who crossed their red line—support from Democrats—to get the job done.

The DXY continues to trend upwards, putting in a year-to-date high at almost 107 last week. US Treasury yields also climbed to a 16-year high, as jobless claims came in below forecasts. This unexpected strength in the US economy has prompted JPMorgan CEO Jamie Dimon to warn that the good feeling may still be a "sugar high" from monetary and fiscal stimulus, and "I am not sure the world's prepared for 7%".

Maybe, but the reset is well under way. A recent Fed study of household finances shows that savings are now back to below pre-COVID levels. That stimulus money has been spent. Families are feeling the pinch.

In other news, the Chairman of Evergrande, the huge Chinese real estate company that has been undergoing restructuring since defaulting on its debt two years ago, has been arrested. Xu Jiayin's detention for as-yet unspecified crimes may result in the complete collapse and government takeover of Evergrande, which has played an important role in China's shadow banking system, and has been emblematic of the problems that have plagued the Chinese economy.

Crypto Flips Bullish

Q3 ended on a high note, as BTC closed out September (almost always a bad month for crypto) in the green for the first time in seven years.

"Uptober", typically a bullish month, also started with a bang, with BTC pushing above $28,000 on Monday morning. The 200-week and 200-day moving averages are both around this level, and it's also the bottom of bitcoin's long-term resistance band. Since BTC is now overbought on the RSI, it's reasonable to expect a pullback at this point—but there are never any guarantees and sentiment seems to have shifted decisively.

Last week, ETH futures ETFs were approved (launching imminently), but the SEC delayed decisions on BlackRock, Valkyrie, and Bitwise spot BTC ETF applications. This was two weeks earlier than the scheduled deadline date, and two days after a bipartisan committee urged Gensler to approve an ETF. It's likely that the early decision was due to the disruption that a shutdown would have caused. The next decision is due by mid-January 2024, and the final one for this application cycle in mid-March.

While this seems like a setback, there are signs that the times might be changing. Eric Balchunas, Senior ETF analyst for Bloomberg, suggests that the SEC might have taken the unprecedented step of contacting applicants to discuss some practicalities—a positive step given their standard approach of stonewalling until the deadline, and then refusing.

The end of this year, and the beginning of 2024, is set to be an exciting time for crypto.

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