Market Commentary

THE DOVISH TURN, WITH IMPORTANT CAVEATS

The week was marked by weak data that abruptly shifted rate expectations. The September jobs report added just 29,000 positions, well below the ~84,000 expected; unemployment rose to 4.2% and the two prior months were revised down by 60,000. Consumer confidence (Conference Board) fell to 81.9 in September, its lowest since 2014, with households expecting 5.1% inflation over twelve months. A cooling labor market takes away the Fed's argument to keep hiking firmly.

August PCE — the Fed's preferred inflation gauge — reinforced the read, but with an important caveat. Core came in at 3.0% year-over-year, below the 3.3%–3.4% expected. That drop, however, was not due to real disinflation but to a BEA methodology change (the agency that calculates it), applied retroactively: July's figure was restated from 3.3% to 3.0%. On the month, core actually accelerated. In other words, inflation risk did not disappear; the way of measuring it changed.

The combined effect on expectations was immediate: the odds of an October 28 hike fell from more than 70% at the start of the week to around 20% (CME FedWatch). But it is worth not over-reading the relief: the probability of a hike by December remains above 75%. The Fed did not abandon the restrictive bias; it postponed it.

RATES: TWO-DECADE HIGHS, BUT ON THE REAL RATE

The bond market told a less benign story. The 10-year note — the reference for mortgages and credit — closed September 30 at 5.29%, its highest since May 2002, and topped 5.34% during the week before easing to ~5.18% Friday on the jobs data. What matters is the composition of that rise: almost all of September's move was the real cost of money — the rate net of inflation, which went from 2.44% to 2.93% — while 10-year expected inflation barely moved, around 2.36%.

The distinction matters. Yields rising on the real rate rather than inflation expectations means the market is demanding more to lend to the government — a mix of debt supply and risk premium — not that it anticipates more inflation. For BTC, the short-term effect is the same: an asset that pays no coupon has to justify its price against a bond that yields ever more. As long as real rates hold at these levels, they keep setting a ceiling.

GEOPOLITICS, ENERGY AND EL NIÑO

The geopolitical front did not improve. Trump rejected on September 26 Iran's seven-day plan to reopen the Strait of Hormuz. The relevant nuance is that crude already flows through Hormuz at nearly its pre-war pace; what does not flow normally are refined products, and that hits wallets directly: U.S. diesel costs USD 6.39 a gallon, 70% more than at the start of the conflict. Moreover, the U.S. strategic petroleum reserve is at its lowest since 1982, so if the war continues, the next supply shock would arrive with less of a cushion.

Energy pressure is joined by a climate one. The U.S. weather agency (NOAA) puts the odds of a very strong El Niño this winter above 90%, with the potential to be the most intense since 1950. The phenomenon is already pushing food prices: the FAO food price index is at its highest since November 2022, with sugar leading the gains. For a Fed watching inflation, expensive energy and food are exactly the pressures that most complicate the picture.

MIDTERM ELECTIONS

The political calendar adds another variable. U.S. midterm elections are on November 3. Trump's approval stands between 37% and 39% in polling averages — and one measure put it at 31%, the lowest of his two terms — and prediction markets give more than 90% to the Democrats winning the House. The figure matters above all for the war: in September Trump suggested the conflict would end just after the elections, though press reports indicate that privately he is weighing resuming bombing. It is a source of uncertainty the market still cannot price precisely.

Bitcoin (BTC): Trades at USD 84,500 (+1.2%), in a week of consolidation above its support. BTC held above the USD 80,800–83,300 zone — where 1.43 million bitcoin were bought, about 7% of the circulating supply — which, after last week's breakout, continues to act as solid support. The advance was modest and without a clear catalyst: ETF demand cooled and high rates capped momentum. The underlying read does not change — the break of structural resistance still stands — but price needs institutional flow to resume in order to extend. Support at USD 80,800–83,300; resistance at USD 86,600 (September's highest close) and, above, USD 90,000.

Ethereum (ETH): Trades at USD 2,670 (-0.4%), essentially flat and losing the backing it had recovered the prior week: its ETFs posted net outflows again (-USD 100.7MM). The asset moved in step with BTC, without its own momentum, and the signal of institutional participation that had reappeared is again in doubt. Support at USD 2,550–2,600; resistance at USD 2,780–2,900.

Solana (SOL): Trades at USD 118.00 (-1.7%), with mild profit-taking after two weeks of leadership. Its ETF flow stalled (essentially flat on the week), consistent with the general pause in demand. The asset retains most of its recent advance and holds above USD 113; the correction looks more like a consolidation than a trend change. Support at USD 110–113; resistance at USD 122–124.

Market structure showed a shift in tone toward the end of the week. Through Thursday, the market had been deleveraging healthily: futures open interest fell 10% from September 22 while price held, a sign the advance rested on spot and not on leverage. That is generally a more solid base.

The picture changed in the last session: the recent bounce had a short-squeeze component (forced closing of bearish bets), with some USD 60.6MM in short positions liquidated within an hour, and leverage returned to the market. It is not a worrying level, but it is a reminder that part of the latest leg up was mechanical, not fresh spot demand.

The contrast between a freezing ETF flow and a price that still advances slightly is explained, in part, by that prior deleveraging and the late squeeze. It is a market held up more by the absence of sellers than by a fresh buying wave — a stable situation, but one that needs flow to return in order to extend.

Expected volatility for the week ahead: high. The calendar concentrates several fronts: NOAA's El Niño report (October 8), the October 14 CPI, the October 28 Fed meeting and the November 3 elections. Any of them can reactivate volatility in a market that today trades without a clear direction.

BTC: +USD 51.20MM, a sharp slowdown after last week's USD 2,251MM. The week combined positive days (+31.0 Monday, +66.2 Tuesday, +102.7 Thursday) with a strong outflow Wednesday (-148.7), for a barely positive net. It is not a bearish reversal — the balance remains positive — but it is a marked pause: the institutional buying that validated the breakout stopped pushing. Confirming whether it resumes or was a one-off spike is the most important signal of the coming weeks.

ETH: -USD 100.70MM, a turn to net outflow after last week's strong inflow. The funds pulled out three of the four days, with the largest outflows at month-end. The relative-allocation signal in ETH's favor, which had reappeared, did not carry through and again requires confirmation.

SOL: -USD 0.50MM, essentially flat after three weeks of inflows. The stall is consistent with the general pause in demand and with the mild price correction. Worth watching whether institutional interest in SOL regains its pace or whether the recent run marked a short-term top.