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This episode was hosted by Noelle Acheson. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl. All original music by Doc Blust and Colin Mealey.

Audio Transcript: This transcript has not been edited and may contain errors.

It’s Thursday, November 16th, 2023 and this is Markets Daily from CoinDesk. My name is Noelle Acheson, CoinDesk collaborator and author of the Crypto is Macro Now newsletter on Substack. On today’s show we’re talking about market moves, stablecoins, rate expectations and more. So you don’t miss an episode, be sure to follow the podcast on your platform of choice, and turn on notifications. And just a reminder, CoinDesk is a news source and does not provide investment advice.

Now, a markets roundup.

Crypto markets seem to be feeling quite contrary. On Tuesday, markets were celebrating the good news of lower U.S. inflation, and yet bitcoin headed downward. Yesterday, markets were more uncertain given the retail sales data, and yet bitcoin went up. According to CoinDesk Indices, at 9 a.m. Eastern time this morning, bitcoin was up 2% over the past 24 hours, trading at 36,857 dollars. Ether was up 1 percent, trading at 2,038 dollars.

The main driver for the two largest crypto assets by market cap seems to still be ETF speculation. Yesterday, the SEC formally announced a delay on the decision on whether or not to approve the Hashdex bitcoin spot ETF proposal, ahead of the deadline on Friday.

Bitcoin’s positive performance could be from relief that it was a delay and not a denial. It could also be a natural correction of the previous day’s slump. Whatever the reason, bitcoin late yesterday came close to reaching $38,000, more than 8% higher than its low point on Tuesday.

Elsewhere, Dogecoin and Cardano were up more than 5%. AVAX was up over 19%, possibly propelled by the announcement yesterday that JPMorgan and Apollo are experimenting with fund tokenization on Avalanche.

In macro indicators, the flood of economic data continues, but today I want to focus on interest rate expectations. Over the past couple of days we saw how inflation pressures continue to ease in the U.S., and how retail spending is also slowing down, although more slowly than expected. We talked about this on Tuesday’s and yesterday’s episodes, if you want to check them out. CME futures suggest that traders are pricing in a less than 1% probability of another rate hike, and a more than 60% probability that the first cut will come in or before May.

And although U.S. yields climbed yesterday, at 4.48% the 10-year yield is still more than 50 basis points below where it was less than a month ago. This is not helping the Federal Reserve. Remember how Fed officials were saying just a few weeks ago how higher yields could make more raises unnecessary? Obviously a drop in yields means that a raise could be back on the table.

So, Federal Reserve officials are now out in force reminding the market of this, that the hiking cycle is not necessarily over, and that cuts are unlikely any time soon. Yesterday, San Francisco Fed President Mary Daly told the Financial Times that the recent inflation data was very, very encouraging, her words, but that another rate hike is still possible. Richmond Fed President Thomas Barkin gave a similar message at an event. And for today, I counted at least eight separate public appearances with remarks from Fed officials, who will most likely reiterate the same message.

The Fed seems to want the market to temper its expectations, as stock market excitement and lower bond yields together could be inflationary. Bond prices move inversely to bond yields, and when bond and stock prices are up, investors tend to feel wealthier and so could spend more, keeping inflation high.

Will the market listen to the Fed? Eventually it will have to, and the sentiment adjustment could end up being painful.

In stocks, yesterday the main U.S. indices were up but muted due to the lower-than-expected drop in retail sales. The S&P 500 gained almost two tenths of a percent, the Nasdaq was flat, and the Dow Jones rose almost half a percent. Today, futures point to a soft opening as today’s economic releases are raising recession concerns. U.S. jobless claims came in higher than expected, while import and export prices fell by more than most economists had been forecasting.

In Europe, the FTSE 100 rose by six tenths of a percent yesterday, as U.K. inflation for October came in lower than expected. The German DAX closed nine tenths higher, and the Eurostoxx 600 index climbed four tenths of a percent. Today, markets are looking mixed, with the UK’s leading index down half a percent, and the DAX index up a similar amount.

In Asia, sentiment was weak today. Japan’s Nikkei index fell three tenths of a percent, China’s Shanghai Composite dropped seven tenths, and the Hang Seng lost 1.4%.

In commodities, oil fell yesterday for the first time in five sessions after a report from the Energy Information Administration showed that U.S. crude inventories have been increasing and are now the highest since August. The Brent Crude benchmark lost around 1% yesterday, and this morning was down a further half a percent, to trade at around 81 dollars and 13 cents a barrel.

Gold was trading rangebound for most of the past 24 hours, but jumped on the latest set of U.S. economic data points out this morning. Earlier today, it was up almost seven tenths of a percent, trading at 1,972 dollars per ounce.

Stay with us – after the break we’re going to talk about a key metric for stablecoins that carries a hopeful message.

Welcome back!

In this section, we’re going to look at stablecoins and what they say about market liquidity.

Yesterday, CoinDesk’s Omkar Godbole reported that the 90-day net change in the total supply of the top four stablecoins had turned positive for the first time in 17 months. The last time this metric was positive was in May 2022, which was when the Terra/Luna stablecoin ecosystem collapsed. That was a painful month that triggered what would end up being a cascade of business failures, dropping prices and an institutional stampede for the exit.

Total stablecoin market cap can be taken as a heuristic for market liquidity since stablecoins form the base of most crypto trades. Supply going up suggests more market participants are getting ready to trade, use DeFi applications or buy NFTs. Supply going down suggests an exit from the market altogether.

As of this morning, the total supply of dollar-pegged stablecoins is over 120 billion dollars. This may sound like a lot, but just before the Terra collapse in May of last year, it was almost 180 billion, which gives you an idea of how much capital has left the crypto market since then. A sign that capital is tentatively coming back is very good news.

Meanwhile, the stablecoin ecosystem continues to grow. Yesterday we heard that stablecoin issuer Paxos got a license to issue dollar-backed tokens in Singapore. The Asian market tends to largely use Tether, for convenience and liquidity, so it remains to be seen whether a Paxos-issued stablecoin will make an impact. But some institutions could end up preferring a regulated version, for compliance reasons. And, Paxos’ license could end up being instrumental in the creation of more enterprise-specific stablecoins, which would suggest an evolution of the use case and the technology at a time when the discussion around central bank digital currencies is getting more intense.

So, the indication that stablecoin supply has bottomed is indeed a good sign that investor interest is picking up. And the development of stablecoin issuers is worth watching.