This week, the market experienced a blend of optimism and caution, shaped by a mix of macroeconomic events and critical earnings reports. The post-Jackson Hole environment initially fueled bullish sentiment, but market participants remained wary, especially as we approached key risk events like Nvidia’s earnings and the upcoming PCE inflation figures.
Macroeconomic Overview: The ongoing narrative of potential rate cuts continued to dominate market sentiment. The odds of a 25 bps rate cut at the September FOMC have risen to 68%, reflecting increased confidence that the Federal Reserve will soon pivot towards a more accommodative stance. Fed Chair Powell’s dovish tone at Jackson Hole, coupled with last week’s job revision of -800k, signaled a growing focus on avoiding a job market collapse. This environment has kept equity markets resilient, with the S&P 500 and other major indices hovering near all-time highs, though caution lingers as trading volumes decline.
Crypto Market Dynamics: In the crypto markets, BTC and ETH prices remained volatile throughout the week, with BTC fluctuating between $59,100 and $63,100, and ETH trading between $2,500 and $2,700. Nvidia’s strong earnings report, while initially a positive catalyst, triggered a “sell the news” reaction in crypto markets, leading to a pullback in both BTC and ETH.
Despite this, the overall sentiment in the options markets has been one of cautious optimism. The options desk observed consistent call buying and calendar spreads across both BTC and ETH, signaling that traders are positioning for potential upward moves, albeit with a watchful eye on downside risks.
Key Trades and Market Activity:
● BTC Structures:
○ There was significant custom structure activity, with large blocks of call spreads and ratio spreads being bought. Notable trades included a +1.00 Call/ -2.00 Call custom structure for both October and December expiries, highlighting strategic bullish positioning.
○ A large number of puts were also bought around the 56,000 to 57,000 strikes, indicating that some traders are hedging against potential near-term downside.
○ The end of the week saw increased interest in Bear Risk Reversals and Call Calendars, reflecting a balanced approach between caution and strategic bullish plays.
● ETH Structures:
○ ETH saw strong activity in Bull and Bear Risk Reversals, particularly around the 2,400 to 2,800 strikes, indicating that traders are positioning for both potential upward momentum and downside protection.○ Custom structures and put calendars were also popular, with several large trades focusing on September and December expiries. These trades suggest that while there is optimism, traders are hedging against volatility in the near term.
Outlook: Looking ahead, the market’s focus will likely shift to the upcoming non-farm payroll report and the PCE inflation figures, both of which could provide further clarity on the Fed’s next moves. The term structure steepened slightly for both BTC and ETH, indicating a cautious yet optimistic stance from traders.
In summary, while the macroeconomic backdrop remains supportive of risk assets, the crypto market is exhibiting a cautious optimism, with significant positioning in both directions. Traders are preparing for potential volatility, but the overarching sentiment leans towards a gradual upward trend, provided that upcoming data does not introduce any significant surprises
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