Alpha Navigator: Quest for Alpha [November 2023]

Peak rates hopes are growing following recent US and Europe economic releases. Risk assets were mostly up in November, led by ETH.

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Executive Summary

• Asset classes mostly rose in November, with ETH leading.

• The narrative that peak interest rates have been reached by the world’s central banks gained support following a series of economic news releases out of the US and Europe. The latest (Oct) US Core Personal Consumption Expenditures Price Index (PCE) increased 0.2% MoM and 3.5% YoY, while headline inflation (CPI) for October came in at 3.2% YoY. Although it is still above the US Federal Reserve’s (Fed) 2% target, it is not too far off from it. A speech by Fed Chair Jerome Powell largely repeated a message familiar to market participants at this point: The Fed will continue to tighten policy as needed to contain inflation. However, he did note that policy is “well into restrictive territory”, which some observers took as dovish. On the other hand, stronger than expected headline gross domestic product growth – at 5.2% in the third quarter – could make it more difficult for the Fed to ease its monetary policy.
• European economic releases saw France become the next major European economy to fall into contraction. France’s gross domestic product shrank by 0.1% in the third quarter, putting its economic contraction in line with that of Germany during the same quarter. Germany’s unemployment rate reached its highest level since the pandemic year of 2021 at 5.9% in November. Concurrently, Euro area inflation was approaching the ECB’s 2% target, falling to 2.4% YoY in November.
• BTC correlations with other assets were mostly positive in the past 1-month and strongest with US equities (excluding ETH).

• BTC options implied volatilities (vols) were generally flat in November.

• Market-Neutral Pair Trader hunts for strongly correlated tokens and potential market-neutral pair trades.

• For the AVAX vs. OP pair, the price ratio (AVAX price divided by OP price) spiked in the past month and is now at the 2-standard deviation (SD) ceiling.

• Our style-factor screens track momentum, value, growth, and risk for the Layer-1 and Layer-2, DeFi, Gaming, and NFT categories. Below is the screen for selected top crypto tokens by market cap in the Layer-1 and Layer-2 category. Token prices continued to rise in November. AVAX and SOL were the best performers.

• Our events section shows recent and upcoming events for selected tokens, as important macroeconomic events.

Read the full Alpha Navigator report: Alpha Navigator: Quest for Alpha [November 2023]

Author

Andrew Ho (Senior Research Analyst)

Research & Insights Team

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