Direct Lending Market: Are We Witnessing a Widespread and Permanent Erosion of Credit?

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Direct lending erosion of credit

Direct lending has transitioned from a niche market to becoming a significant financing channel for SMEs, where traditional bank financing has been steadily replaced by debt funds. As a result, according to Sebastian Zank, Head of Corporate Credit Production at Scope Ratings, direct lending is increasingly used for SMEs with strong growth prospects, either bolstered by mergers and acquisitions or through exposure to high-growth segments.

In his latest analysis, Zank concludes that the growth of assets managed by direct lenders focused on European companies is expected to slow amid constraints on growth and investment. He also acknowledges that while the credit profiles of borrowers have deteriorated over the past two years, the outlook is improving.

“The weakening of credit profiles has been primarily due to the impact of variable and unhedged interest rates, weaker-than-expected operating results, low returns on reduced investments, and delays in deleveraging. However, we believe the erosion of credit quality has bottomed out given the decline in interest rates, easing concerns about economic growth, and the adaptation to a more challenging environment. Meanwhile, the heightened risk of default can be mitigated through a series of measures provided by private equity firms and direct lenders,” Zank explains.

In his view, these measures include greater flexibility between direct lenders and borrowers regarding payment terms compared to more traditional financing; commitments from private equity firms for capital injections or shareholder loans that can be converted into equity or PIK (payment in kind) facilities, where interest is paid by issuing new debt to the benefit of borrowers; as well as substantial dry powder (liquid financial resources available for investment) that can be used to provide bridge financing to companies likely to face difficulties.

In this context, Scope has already assigned 70 private ratings and 24 point-in-time credit estimates to various borrowers accessing direct lending, with a total rated credit exposure of over €5.6 billion. According to Sebastian Zank, issuer ratings are largely concentrated in the B category.

“The most surprising aspect is the migration of ratings. While around half of the ratings in our coverage could be maintained or reflect an upgrade, the other half shows a deterioration in ratings, either through actual downgrades/point-in-time downgrades or weaker outlooks. However, this does not indicate a widespread and permanent erosion of credit. When observing the outlook distributions, a significant portion of the negative credit migration has already been reflected, and it is likely that the erosion of credit will slow down,” Scope explains.

Assets under management by debt fund managers focused on direct lending to European companies have reached $400 billion. However, Scope expects growth to continue at a slower pace than the 17% CAGR (compound annual growth rate) of the past 10 years, at least until current constraints on economic growth and investment (such as higher long-term interest rates) are offset by supportive factors.

“Although the strong growth of direct lending over the past decade has been supported by a wide range of factors, we do not believe that the recent headwinds are strong enough to halt the growth in fundraising and deal allocation. We expect direct lending activities in Europe to continue growing, albeit at a slower pace than the average annual fundraising of approximately $40 billion in the past five years,” adds Zank.

Scope notes that while this suggests a pronounced growth trajectory (10-year CAGR: 17%), assets under management in Europe remain significantly lower than volumes in the U.S., where direct lending took off well before the global financial crisis and has become a widely utilized, if not commoditized, financing strategy.

The slower development of direct lending in Europe is primarily associated with several reasons, explains Zank: “The still significant regional and local banking sectors in most European markets, where bank financing remains the most common channel for mid-market companies, and the non-harmonized environment across European markets, where local knowledge of insolvency laws and lending conditions is crucial for debt fund managers.”

He adds: “Nonetheless, direct lending has transitioned from a niche market to becoming a significant financing channel for SMEs, where traditional bank financing has been steadily replaced by debt funds. In particular, we observe the use of direct lending for SMEs with strong growth prospects, either supported by mergers and acquisitions or through exposure to high-growth segments. Moreover, this financing channel is frequently used in cases of business successions and recapitalizations,” he concludes.

France and Germany: How Does Political Complexity on Both Sides of the Rhine Reflect in European Assets?

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France Germany political complexity European assets

We previously warned that 2024 would be a year heavily influenced by electoral processes and political developments, and this remains the case to the very end. France and Germany, the two main engines of the Eurozone economy, are navigating complex political landscapes. On both sides of the Rhine, governments are grappling with budgetary spending and deficit control, creating domestic challenges that, according to experts, affect the attractiveness of European assets.

“On the French side, the Barnier government faces uncertainty over its ability to maintain power—an almost unprecedented situation under the Fifth Republic, as a no-confidence vote will be held today. In Germany, early elections are set for February 23, 2025, and there is ongoing debate about amending the debt brake rule, which limits the federal deficit to 0.35% of GDP. Unfortunately, such a modification requires a two-thirds parliamentary majority—a challenging goal given the current fragility of traditional parties,” summarizes François Rimeu, senior strategist at Crédit Mutuel Asset Management, describing the political dynamics in both nations.

Rimeu sees the situation in France and Germany as highlighting broader challenges for the Eurozone, including fiscal integration to curb internal optimization (e.g., in Ireland, the Netherlands, and Luxembourg), a common defense policy to address current and future geopolitical risks, a shared energy strategy, and unified migration policies. However, these challenges are compounded by the political complexities in France and Germany, raising a pressing question: What are the implications for investment? Experts point to two areas—bond spreads and European equities. Let’s break them down.

France: Stuck in the Political and Fiscal “Periphery”

Benoit Anne, Managing Director of the Strategy and Insights Group at MFS Investment Management, likens France’s current situation to being “stuck in the center of Paris.” He explains:

“Anyone who has tried driving through Paris knows that being stuck on the frequently congested Peripherique ring road is a traumatic experience. Interestingly, French spreads are similarly stuck in the periphery of the Eurozone, with little hope for an end to the trauma anytime soon.”

Anne’s colleague, Peter Goves, head of Developed Markets Sovereign Analysis, echoes the sentiment, stating there is little sign of relief in France’s sovereign debt struggles. Both experts view France’s political outlook as bleak, ranging from catastrophic to merely mediocre scenarios.

“This inevitably continues to impact business and consumer confidence. In any future political scenario—whether the current government survives or falls—expecting a constructive outlook on French sovereign debt is overly optimistic,” Anne warns.

The 10-year spread between France and Germany currently stands at around 85 basis points, on par with Greece. However, according to MFS IM, the triple-digit territory could be only weeks away. There may also be repercussions for European credit, as France’s weight as a risk-bearing country in the index is significant. For this reason, MFS IM’s fixed-income team maintains a cautious stance toward the French financial sector, given its potential vulnerabilities in this uncertain environment.

Dario Messi, Head of Fixed Income Analysis at Julius Baer, points to the widening of government bond spreads as the most critical issue. “This reflects a political risk premium that is unlikely to disappear in the short term, rather than genuine concerns over debt sustainability at this stage. France’s political fragility has increased significantly since the early elections last summer, with the country’s heated budget debates serving as yet another example,” Messi explains.

Even if the budget is passed, Enguerrand Artaz, fund manager at La Financière de l’Échiquier (LFDE), notes that the deficit would only drop to 5% of GDP—a level still extremely high in absolute terms. “France has exceeded the excessive deficit threshold (3% of GDP) more often than any other Eurozone country since the bloc’s creation: 20 out of 26 years. Additionally, France currently holds the worst deficit-to-debt ratio in the Monetary Union. Italy and Greece, countries with higher debt-to-GDP ratios, have achieved near-budget balance (Italy) or a net surplus (Greece) in 2024,” Artaz highlights.

Implications for Fixed Income and Equities

According to Julius Baer, political instability in France is unlikely to fade soon, keeping sovereign spreads volatile and elevated compared to German bonds by historical standards. This translates to a political risk premium on French government debt.

However, Messi clarifies that this is not yet a matter of debt sustainability. “The current widening of spreads remains modest in absolute terms. While primary budget deficits are too high and will need to be addressed, interest rates on debt remain low, rising very slowly, and are not expected to outpace nominal growth in the medium term. This should limit concerns over debt sustainability.”

Despite these dynamics, Artaz warns that France could face a debt crisis in the coming quarters if poor budget management and political instability persist. “A climate of distrust could push interest rates higher in markets, leading to a debt crisis—a major risk for the Eurozone in the near term.”

On equities, Axel Botte, Head of Market Strategy at Ostrum AM (Natixis IM), notes that the CAC 40 is heading for its worst year since 2010 compared to European stock markets. The index has underperformed the German DAX 30 since last spring, despite Germany still being in recession due to structural challenges like dependence on Russian energy and chronic underinvestment. In Botte’s view, French banking stocks, in particular, have weighed on the index.

Germany: A Budget Debate Amidst Political Change

While France garners much attention this week, Germany is not without its own challenges. On November 6, the coalition government of Social Democrats (SPD), Greens, and Free Democrats (FDP) collapsed. A key trigger was Chancellor Scholz’s dismissal of his liberal Finance Minister over disagreements on funding a supplemental 2024 budget. Early elections are now set for February 23, following a no-confidence vote on December 16.

Martin Wolburg, senior economist at Generali AM, explains that Germany faces budget challenges for 2024 (€11.8 billion needed) and, more critically, for 2025. “Without a parliamentary agreement on the 2025 budget, a provisional budget based on 2024 expenditures would be implemented until the new government finds consensus. This process could stretch well into the summer or beyond.”

Looking ahead, Artaz predicts that regardless of Germany’s next coalition, the country’s fiscal orthodoxy will likely soften. Options include loosening debt-brake rules, extending the €100 billion defense fund created in 2022, or increasing the deficit cap from 0.35% of GDP to 0.5% or even 0.75%.

For investors, this shift could provide a breath of fresh air. “A more flexible fiscal approach might boost sectors like automotive and chemicals, which have been overlooked,” Artaz concludes.

Despite the political upheaval, DWS views Germany’s DAX as having strong potential for 2025. The index recently surpassed 20,000 points, a historic high, driven by gains in industrial, tech, and telecom stocks.

As France and Germany tackle their political and fiscal challenges, investors must closely monitor developments in bond spreads, sovereign debt sustainability, and equity market performance. Both nations’ paths will undoubtedly shape the future of the Eurozone and its investment landscape.

Institutional Investors Consider Valuations and Interest Rates to Be the Main Risks to Their Portfolios in 2025

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Institutional investors risks valuations rates 2025

The macroeconomic outlook at the end of 2024 appears positive: inflation is decreasing, and interest rates are falling. Despite this, valuations (for 47% of institutional investors) and interest rates (for 43%) remain the primary concerns for portfolios in 2025, according to the results of a new survey* by Natixis Investment Managers (Natixis IM).

As explained by the firm, following a two-year bull market where much of the gains have been concentrated in technology stocks, up to 67% of respondents believe that equity valuations currently do not reflect fundamentals. However, there is optimism among respondents, with 75% stating that 2025 will be the year when markets realize valuations matter. Nonetheless, 72% emphasize that the sustainability of the current market rally will depend on central bank policies.

Improving Sentiment

One of the key findings of this survey is that sentiment has improved drastically over the year. For example, there is a more positive view of inflation, with over three-quarters of respondents globally believing that inflation will either decrease or remain at current levels (38%) in 2025. Overall, 68% are confident that inflation will meet expected levels next year, while 32% remain concerned about potential inflation spikes in the global economy in 2025.

Economic Threats

Despite this optimism, institutional investors still see a wide range of economic threats for the coming year. Their biggest concerns are the escalation of current wars (32%) and U.S.-China relations (34%). While their market outlook may be optimistic, institutional investors remain realistic: despite the relatively calm performance of major asset classes during 2024, many respondents globally anticipate increased volatility in equities (62%), bonds (42%), and currencies (49%) in 2025.

Moreover, although confidence in cryptocurrencies has more than doubled (38% compared to 17% in 2024), given the speculative nature of this investment and its usual volatility, 72% state that cryptocurrencies are not suitable for most investors, and 65% believe they are not a legitimate investment option for institutions.

However, portfolio plans show high confidence, with 48% of respondents actively de-risking their portfolios. “Moreover, four out of ten Spanish institutional investors state that they are actively taking on more risk in 2025,” noted the firm.

Private Market Boom?

Another conclusion of the survey is that institutions plan to continue increasing their investments in alternative assets in 2025, with 61% of respondents expecting a diversified 60:20:20 portfolio (with alternative investments) to outperform the traditional 60:40 stocks-to-bonds mix. Regarding where to allocate the 20% alternative portion, institutions are clear about wanting to add more private assets to their portfolios.

Among all options, 73% are most optimistic about private equity in 2025, a significant increase from the 60% who felt the same a year ago. “This is likely to change throughout next year, as 78% believe rate cuts will improve deal flow in private markets, and 73% of respondents anticipate more private debt issuance in 2025 to meet growing borrower demand,” Natixis IM explained.

In terms of their approach to private investments, 54% report having increased allocations to private markets, while 65% are exploring new areas of interest, such as opportunities related to artificial intelligence.

Markets Will Favor Active Management

Finally, a noteworthy finding is that 70% of institutional investors believe that markets will favor active management in 2025, while 67% said their actively managed investments outperformed benchmarks over the last 12 months. “Given the changing interest rate and credit environment, institutions are likely to benefit from active investing. Overall, 70% of respondents stated that active management is essential for fixed-income investing,” concluded the firm.

Natixis IM interviewed 500 institutional investors managing a combined $28.3 trillion in assets, including public and private pension funds, insurers, foundations, endowments, and sovereign funds worldwide.

Reaching More Places: Details of the Business Strategy Janus Henderson Will Pursue in 2025

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Tecnología y salud entre pequeñas y medianas ofertas

This year, Janus Henderson Investors celebrated its 90th anniversary, taking the opportunity to reflect internally on its values and what differentiates it from competitors. In this retrospective, Martina Álvarez, Head of Sales for Iberia, brought the conversation to the Spanish market, stating, “I am very proud of the results the Spanish industry is achieving.”

Álvarez cited Inverco data, highlighting that the Spanish investment fund market has tripled in size over the past decade (including both domestic and international fund managers), becoming the fastest-growing market in the Eurozone. She also noted that “the business is now extremely mature,” with clients showing more rational behavior thanks to advancements in financial education, such as refraining from making withdrawals during market downturns.

Despite this progress, with over €1 trillion still held in deposits, Álvarez sees a significant opportunity for the industry. She remarked, “Now is the time to move that money into funds,” especially as the impending cycle of interest rate cuts is likely to diminish the appeal of money market funds.

Janus Henderson’s assets under management (AUM) in Spain are now approaching €4 billion, a milestone Álvarez believes will soon be reached. She emphasized the increased presence of Janus Henderson’s products in more institutions and with more funds, reflecting a strong appreciation by Spanish entities for active, independent management.

When asked about the firm’s goals for 2025, Álvarez provided a straightforward response: “Reaching more places.”

One avenue involves pursuing mergers and acquisitions (M&A) “when it makes sense.” For instance, Janus Henderson has expressed a strong desire to expand its presence in the illiquid assets sector. This year, it acquired Victory Capital, a private credit firm, and NDK, an infrastructure platform focused on emerging markets, as part of this effort.

Another major strategic focus for 2025 is the firm’s active ETF segment, where Janus Henderson is already the fourth-largest provider in the U.S. According to Álvarez, the business receives $1 billion per month in inflows in the U.S. alone. The goal is to pioneer the expansion of this product line in Europe.

At the Madrid Knowledge Exchange event held in September, Nick Cherney, Janus Henderson’s Head of Innovation, projected that assets under management in Europe’s active ETFs market, currently at $50 billion, could grow to $1 trillion by 2030. This growth will be driven by tokenization and increasing client demand.

BlackRock Launches Europe’s First Actively Managed Regulated Money Market ETF

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BlackRock has introduced the iShares € Cash UCITS ETF (YCSH), a new actively managed ETF offering investors a way to manage their cash investments through a product designed to deliver money market-like returns.

According to BlackRock, the ETF combines the quality and liquidity of regulated money market funds (MMFs) with the convenience of the ETF format. Leveraging the expertise of its global cash management team, the fund actively manages cash in varying interest rate environments within a robust risk management framework.

As a key portfolio component, the fund provides access to highly rated short-term money market instruments, adhering to the stringent guidelines of the European Money Market Fund Regulation (MMFR), while offering clients the flexibility to meet their liquidity needs.

BlackRock highlights that extending MMF regulatory standards to the ETF ecosystem should enable a broader range of investors to actively manage their cash. “This product can be used to maximize the return on cash held in savings accounts, ETFs, or trading accounts, as well as by investors seeking a diversified cash investment tool as a complement or alternative to a standard bank account,” the firm stated.

The ETF allows individual investors, including those using digital investment platforms, to earn income through high credit-quality securities without minimum holding periods, and with investments starting from as little as €1.

“The YCSH combines the flexibility and accessibility of the ETF format, including continuous pricing and the ability to trade throughout the day, with the security of money market fund regulation. It’s an innovative solution for investors looking to get more out of their cash. This year, Europeans have shown significant interest in income investments, and YCSH expands the available options without requiring a fixed investment period,” said Jane Sloan, Head of Global Product Solutions for EMEA at BlackRock.

A dedicated team of money market portfolio managers will actively adjust the fund’s duration, credit exposures, and liquidity profiles to minimize volatility and ensure issuer diversification.

Beccy Milchem, Global Head of Cash Distribution and Head of International Cash Management, added: “Cash plays a critical role in a balanced investment strategy. We are pleased to bring BlackRock’s extensive expertise in active cash management to a wider range of investors through the convenience of ETFs. The demand for money market funds has grown in today’s high-interest-rate environment as investors look to actively manage their cash positions.”

With $849 billion in global assets under management in money market strategies, BlackRock International Cash Management ranks among the top three providers of MMFs. For nearly 50 years, BlackRock has delivered a variety of liquidity solutions tailored to the unique needs of each client across multiple interest rate cycles and market conditions.

This launch combines BlackRock’s leading expertise in cash management with the breadth and scale of the global leader in ETFs. The fund will be listed on Xetra with a total expense ratio (TER) of 0.10%.

Trump Nominates Paul Atkins as New SEC Chair, Advocating for “Common-Sense Regulations”

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Wikimedia CommonsPaul Atkins

U.S. President-elect Donald Trump has nominated Paul Atkins to serve as the new Chair of the Securities and Exchange Commission (SEC), effective January 20, 2025.

“Paul is a proven leader who advocates for common-sense regulations. He believes in the promise of strong and innovative capital markets that address the needs of investors while providing the capital necessary to make our economy the best in the world,” Trump said in a statement on Wednesday.

The president-elect, set to take office on January 20, also emphasized that the incoming SEC Chair “recognizes that digital assets and other innovations are crucial to making America greater than ever.”

Atkins previously served as one of the SEC commissioners, appointed by George W. Bush in 2002, a role he held until 2008.

He is currently the CEO of Patomak Global Partners, a strategic consulting firm for major financial clients that he founded in 2008 after leaving the SEC. At Patomak, he advises banks, trading firms, and fintech companies, among others.

Industry insiders anticipate that Atkins’ tenure will focus on deregulation, contrasting with the years under Gary Gensler, who was known for his rigorous enforcement of regulations.

The nominated SEC Chair has expressed support for digital assets, a stance that aligns with the immediate rise in Bitcoin’s value following Trump’s announcement. Within just an hour of the news, the cryptocurrency rose 1.25%, surpassing the $97,000 mark.

In Europe, From January to October, ETFs Attracted $207.79 Billion, Surpassing the 2021 Record

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According to the latest report from ETFGI, an independent research firm, the ETF market is on track to break all records, as demonstrated by October’s flows. During the first ten months of the year, ETFs captured $207.79 billion, surpassing the record set in 2021 with inflows of $193.46 billion. In terms of leadership, the Xtrackers S&P 500 Equal Weight UCITS ETF (DR) – 1C (XDEW GY) gathered $1.73 billion, the largest individual net inflow.

“The S&P 500 index fell by 0.91% in October but rose by 20.97% in 2024. The developed markets index, excluding the U.S., dropped by 5.22% in October but rose by 6.65% year-to-date in 2024. The Netherlands (-10.20%) and Portugal (-8.24%) recorded the largest declines among developed markets in October. The emerging markets index fell by 3.78% in October but rose by 14.93% year-over-year in 2024. Greece (-8.66%) and Poland (-8.18%) experienced the largest declines among emerging markets in October,” highlighted Deborah Fuhr, managing partner, founder, and owner of ETFGI.

Regarding the behavior of flows in October alone, the report indicates that $31.55 billion in inflows were recorded. By asset type, equity ETFs attracted $22.42 billion, bringing year-to-date inflows to $144.69 billion, significantly above the same figure for 2023. In the case of fixed income, ETFs attracted $6.18 billion in October, with year-to-date net inflows reaching $53.12 billion, “slightly above the $51.63 billion in year-to-date net inflows in 2023,” according to the report.

In the case of commodity ETFs, these recorded inflows of $385.46 million in October, bringing year-to-date net outflows to $4.51 billion, below the $4.79 billion in year-to-date net outflows in 2023. “Active ETFs attracted net inflows of $2.68 billion during the month, bringing year-to-date net inflows to $14.66 billion, above the $6.19 billion in year-to-date net inflows in 2023,” it highlights.

A significant fact is that, by the end of October, the European ETF sector comprised 3,109 products, 12,744 listings, and $2.22 trillion in assets. These $2.22 trillion came from 105 providers listed on 29 exchanges in 24 countries.

 

Bitcoin’s Highs Highlight Investors’ Main Concern: Crypto Asset Custody

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Cryptocurrency investors are ending the year with euphoria. Bitcoin began the week surpassing $98,000, edging closer to the pivotal $100,000 mark. According to experts, the decisive election of Donald Trump as the 47th president of the United States has reduced uncertainty, eliminating a major source of instability.

“As a result, one of the largest economies in the world, the United States, is now poised to implement liberal and crypto-friendly regulation, representing a significant step forward,” says Mireya Fernández, Country Lead for Bitpanda in Southern Europe and CEE.

Fernández highlights positive developments in recent years, including increased adoption of digital assets by retail investors, crypto market regulation in Europe, central bank interest rate cuts, and the integration of cryptocurrencies into traditional financial systems and banking portfolios. “The market is eager, and prices continue to trend upward. Bitcoin reaching $100,000 is not just a number but a genuine turning point for the crypto sector,” she adds.

Market Fundamentals

Manuel Villegas, Digital Asset Analyst at Julius Baer, notes that Bitcoin’s strong prices, currently hovering near $90,000, are backed by solid fundamentals. “Demand for spot products, positions in derivatives, and corporate intentions to add Bitcoin to treasury reserves are key factors shaping this scenario. While volatility is likely in the future, the current demand base is solid, suggesting this trend could persist. We see few significant short-term obstacles for Bitcoin,” says Villegas.

Custody Concerns

Bitcoin’s impressive performance underscores a key concern for investors, particularly institutional ones: custody. A survey by Nickel Digital Asset Management of institutional investors and wealth managers from the U.S., UK, Germany, Switzerland, Singapore, Brazil, and the UAE, managing a combined $800 billion in assets, found custody to be a bigger issue than volatility.

The survey asked participants to rank six barriers to investing in digital assets. The lack of centralized authority ranked as the second-largest barrier, followed by ESG issues and market manipulation risks. Regulatory uncertainty was ranked sixth and considered the least significant.

A notable 97% of respondents stated that backing from a major traditional financial institution is essential before considering investments in any digital asset fund or vehicle. Recent volatility has also encouraged skeptics: 19% strongly agree that price dislocations have presented solid opportunities for initial investments or increased allocations, with another 76% somewhat agreeing.

Anatoly Crachilov, CEO and Co-Founder of Nickel Digital, notes: “The industry has made significant progress in mitigating custody and counterparty risks through the adoption of off-exchange settlement solutions—an advanced form of digital asset custody—in recent years. However, this knowledge seems limited outside the native digital community. The close involvement and broad support of major traditional financial institutions are crucial for many investors, making the increased participation of BlackRock and Fidelity a very welcome development.”

New Developments

Investors are witnessing fresh advancements. According to Villegas, beyond expectations of regulatory and legislative improvements in the U.S., optimism has been fueled by Trump’s recent appointments, announcements of new agencies like the Department of Government Efficiency (DOGE), and corporate reserves. These factors, he says, have driven markets to “put their money where their mouth is,” with prices well-supported by spot demand.

On November 15, the Commodity Futures Trading Commission (CFTC) approved asset managers’ applications for options on some spot Bitcoin ETFs in the U.S., granting investors enhanced tools to hedge against directional risks or speculate further on Bitcoin’s price performance. “These derivatives should begin trading soon. Looking ahead, volatility is likely. Prices are high, and the market is relatively overextended, but with a strong demand base, this trend could continue. We see few significant short-term obstacles for Bitcoin,” concludes the Julius Baer analyst.

WisdomTree Launches a Physically-Backed XRP Cryptocurrency ETP

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WisdomTree, a global provider of financial products, has announced the launch of its latest cryptocurrency exchange-traded product (ETP). The WisdomTree Physical XRP ETP (XRPW) is listed on Deutsche Börse Xetra, the Swiss SIX Exchange, and the Euronext exchanges in Paris and Amsterdam with a management expense ratio of 0.50%, making it the lowest-cost ETP in Europe offering exposure to XRP.

The fund is designed to provide investors with a “simple, secure, and cost-efficient” way to gain exposure to the price of XRP. It is fully backed by XRP, “offering exposure to the spot price of XRP through an institutional-grade, physically backed structure.” Investors will also benefit from a dual custody model with regulated custodians and the underlying assets professionally secured in “cold storage.”

Regarding this cryptocurrency, the fund manager explains: “XRP is a native digital asset of the XRP Ledger (XRPL), a decentralized, permissionless, and open-source blockchain. XRPL uses a Proof-of-Association (PoA) consensus mechanism operated by universities, exchanges, businesses, and individuals to validate transactions. This system is more efficient than Proof-of-Work (PoW), as it requires less hardware resources and consumes less energy.

Created in 2012 specifically for payments, XRP can settle transactions on the ledger in 3-5 seconds and was designed to be a faster and more sustainable alternative to Bitcoin. XRP can be sent directly without a central intermediary, making it a convenient tool for bridging two different currencies quickly and efficiently. It is freely traded on the open market and is used in real-world applications to enable cross-border payments and microtransactions.”

Following this launch, Dovile Silenskyte, Head of Digital Asset Analysis at WisdomTree, suggests that with increasing risk appetite, exposure to altcoins like XRP could outperform a standard Bitcoin and Ether allocation. In her view, XRP can be considered alongside these megacaps in a multi-asset portfolio to reduce exposure to a single token. “Cryptocurrencies represent more than 1% of the market portfolio and should therefore be part of a comprehensive investment strategy. As an asset class with low correlation to traditional asset classes, cryptocurrencies can help increase diversification and potentially improve risk-adjusted returns in a multi-asset portfolio,” Silenskyte adds.

Meanwhile, Alexis Marinof, Head of Europe at WisdomTree, highlighted: “This new launch complements our existing range of physically backed cryptocurrency ETPs, offering investors another solution to enhance their multi-asset portfolios. Cryptocurrency ETPs are an effective way to keep investors within a regulated framework and are becoming the preferred vehicle for accessing cryptocurrencies. WisdomTree has 20 years of experience in providing and managing physically backed ETPs for institutional investors. With over $100 billion in assets under management globally across ETFs and ETPs, investors in our cryptocurrency ETPs can benefit from our global reach, scale, and resources.”

The Known, the Unknown, and the Unknowable Will Shape the Commodities Market in 2025

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The reelection of Donald Trump as president of the United States had a notable impact on commodities markets, with significant declines driven by a stronger dollar and investor repositioning. According to Marcus Garvey, Head of Commodities Strategy at Macquarie, uncertainty surrounding trade and tariff policies is affecting global growth projections. Additionally, inflation and geopolitical risk may continue to influence the prices of assets like gold and oil. “Supply and demand for commodities will remain heavily influenced by macroeconomic factors beyond specific policies,” Garvey notes.In its latest report, Macquarie suggests that the initial sell-off in commodities following Trump’s reelection was likely a knee-jerk reaction to the pronounced strength of the U.S. dollar. The Bloomberg Commodity Index (BCOM) closed the day down approximately 1%.Investor Positioning and Market Dynamics

Garvey highlights how investor positioning played a role in the market’s movements. For example, zinc, which had significant long positions, saw a nearly 5% decline, while Brent crude, heavily shorted, recovered somewhat to close with a loss of less than 1%. “Subsequent recovery aligned with a slight easing of the dollar and outperformance in the markets initially hit hardest,” he adds.While short-term commodity price fluctuations often move inversely to the strength of the dollar, Garvey stresses the importance of distinguishing between causation and correlation. “Exchange rate fluctuations alone are not definitive drivers of commodity price changes—note that the relationship between the dollar and commodity prices has been inverted for much of the past three years. The underlying macroeconomic factors are what truly matter,” he explains.Risks of Stagflation and Global Slowdown

Macquarie economists predict that the combination of higher tariffs, large and growing deficits (due to tax cuts), and reduced immigration (through deportation of undocumented immigrants) could likely slow growth and raise inflation, potentially leading to stagflation by late 2025.They also warn that a 60% tariff on all Chinese imports, combined with broader trade restrictions, could reduce China’s exports by 8 percentage points and its GDP by 2 percentage points by 2025.This global slowdown, they argue, would be bearish for overall commodity price trends, exacerbated by the bullish implications for the U.S. dollar. “While commodities are often considered an inflation hedge, this scenario—where inflation is not driven by strong demand growth or a negative commodity supply shock—would make it difficult for them to fulfill that role,” Macquarie argues.Policy Uncertainty and Commodity Sensitivity

Macquarie warns that the specifics and implementation mechanisms of tariffs remain unclear, as does the extent to which Chinese authorities may counteract their impact by boosting domestic demand. They point to corporate debt growth and monetary supply expansion as key signals to monitor for the effectiveness of monetary easing in China.In the U.S., the experts suggest that before Trump’s policies take effect, commodity prices will likely react to headlines. The high degree of uncertainty makes it exceptionally difficult for markets to price in a specific outcome. “This could amplify the impact of current favorable conditions—China’s initial monetary easing gaining traction in industrial activity, real wage growth in developed markets supporting consumption, and the strong performance of other risk assets—lifting prices in early 2025. The net effects on global growth will only become apparent afterward,” Macquarie economists add.Oil and Geopolitical Risks

Regarding oil, Macquarie sees Trump’s “drill, baby, drill” policy unlikely to significantly accelerate crude production but suggests it could marginally increase investor appetite for oil and gas.Given already high levels of activity—daily production has increased by 1 million barrels since 2019 and 2 million barrels since the 2020 pandemic lows—supply is expected to continue responding to prices rather than policies.However, geopolitical tensions under Trump’s second administration could result in supply-side surprises. “In both the Middle East and in relation to Russia’s invasion of Ukraine, scenarios exist where the currently discounted risk of supply disruptions could materialize,” the Macquarie economists warn.Gold: A Hedge Against Uncertainty

While gold’s geopolitical uncertainty boost tends to be short-lived, Macquarie identifies two key drivers that could push prices higher despite dollar strength. Chinese Investors: If Chinese investors use gold to hedge against currency devaluation risks, it could diminish the sensitivity of Western investors to the opportunity cost of holding a zero-yield asset with zero credit risk. Safe-Haven Appeal: Reduced sensitivity to these costs could solidify gold’s role as a crucial hedge in uncertain economic environments.
“Gold’s unique position as a zero-yield but zero-credit-risk asset is critical in this context,” Macquarie concludes.