What a Fed Pivot Means for Crypto
Tech stocks and cryptos were on fire last week as investors were encouraged by growing speculation that US policymakers would likely unveil an unprecedented half-percentage point cut in interest rates.
After falling by the same amount the week before, the Nasdaq 100 made a sharp turnaround, increasing about 6% in five consecutive days of gains.
Bitcoin also recovered to rise over 6% over the past week after crashing in the week before.
However, cryptos have started the week on the back foot, similar to global stocks, as traders act cautiously ahead of the crucial Federal Reserve meeting this week.
The volatility in risk assets will continue to be in play this week, as we see in Bitcoin's price move on Monday. This is expected to be the case even as the Fed delivers a rate cut.
Market moves show a 50 basis points move is still at play. However, BRN predicts a 25 bps move on Wednesday.
The risk-takers on Wall Street have repeatedly ignored the Fed's directions and changes in bond market sentiment toward the economy.
This time, it is no different.
Now that traders are paying heed to the widespread expectations that Jerome Powell will drive a pivot to monetary action, they are placing bets on a gentle landing for the US economy.
It adds another turn to a recent storyline that has been fruitful for market narratives.
Having almost given in to economic pessimism, stock market participants have persuaded themselves that growth can be sustained, particularly in light of the impending dovish move in the monetary policy.
For the bulls, it is a perfect investing background as a proactive Fed stimulates a still-expanding economy.
But without a 50 basis point cut, can the Fed's action this week be called a proactive move?
To guarantee the Fed doesn't fall behind the curve in its efforts to prevent damage to the labour market, traders increased their bets on a greater, half-point decrease.
On the other hand, some think the economy doesn't require further monetary easing right now and that a half-point decrease would be too drastic.
Bets for a massive cut to the benchmark rate were rekindled on Friday in the futures markets, days after the notion was given little chance of happening.
The change pushed the dollar down and prolonged a strong advance in equities thought to be beneficiaries, such as inexpensive shares, smaller companies, and those paying big dividends.
The S&P 500 had its strongest week since November, rising 4% over five sessions.
The benchmark index is currently within 50 points of its all-time high, hit in July.
Additionally, junk bonds rose as a prominent exchange-traded fund that tracked these assets and reversed a two-week fall.
Even still, 10-year Treasury rates hit a 15-month low, and gold prices reached an all-time high this week, both of which may be seen as negative economic signs.
The reasonably strong job market and hotter-than-expected consumer price data call for a modest monetary policy shift.
However, global economists and William Dudley of the New York Federal Reserve argue that the central bank should implement a more pronounced stimulus to prevent the Fed from lagging behind.
The argument for a 25 basis points cut is that while global central banks have nearly reined in the inflation boom that the pandemic sparked, they have exhausted every available means in their fight against inflation in recent years.
Factors such as supply shocks, geopolitics, and climate change reveal their strategy's limits.
They could have even less influence in the years to come if inflation flares up again.
Policymakers should exercise prudence in light of this.
The longevity of the party that stock bulls are planning could be better. Particular features of the present surge in risky assets, such as values never reset by a complete economic recession, probably doom it to a shorter life period.
Only four of the 12 bull markets in the past 12 years began in anything other than a recession, and even then, they only lasted for around half the time the others.
The S&P 500's gains are just one-third as large, and a bull market that does not have the conventional recessionary narrative tends to have a shorter lifespan than its genetically superior counterpart.
If the bull does run, the current one would last until May 2025 if it were to mimic the average performance of its four most cyclically important predecessors.
That would be poor performance in a cycle where the Fed is easing and the economy is still expanding.
Hedge funds are also being cautious.
In fact, according to Morgan Stanley's prime broking team, they have reduced their net equity exposure to the lowest level since late last year.
Data from Bank of America's EPFR Global, US stock funds saw their biggest weekly withdrawals since April, indicating that market positioning is becoming more watchful.
Furthermore, naysayers point out that the rate of interest currently priced in Fed fund futures — almost two full percentage points over the next twelve months — has hardly been witnessed in circumstances other than recessions. They argue a 50 bps cut does more harm than good now.
Blockcast
This week marks the first iteration of Blockcast hosted by Copper Head of Revenue APAC, Takatoshi Shibayama, who will take on the role of host in upcoming episodes.
In this edition of Blockcast, we sit down with Aneirin Flynn - the formal Navy Diver turned Ethlas CBO and now FailSafe CEO. Flynn reflects on his deep sea diving days and how his experience with the navy unit helped to shape his risk appetite for Web3.
Elsewhere
Blockcast
A year after our previous interview with Yat Siu, Blockhead catches up with the Animoca Brands founder in Bali at Coinfest 2024 to find out how TradFi adoption is impacting blockchain gaming and the metaverse.
Events
All Day Crypto Bash (Singapore, 17 September 2024)
Blockhead is partnering with Draper Startup House to bring you an exclusive, action-packed day at on 17 September, during Token 2049 week in Singapore.
This event, co-organized alongside Draper Nation, Hyperglade, SUN ZU Lab, Metacamp and Clubout, is an opportunity to connect, learn, and chill with the best in the blockchain, crypto, and web3 community!
Apart from panel discussions, fireside chats and workshops, there'll be food, drinks, and lots of time for networking. Bring a change of clothes if you're keen on participating in the ice baths and other wellness activities!
The event will run from 9 am to 8 pm on Tuesday, 17 September. Find a rundown of activities and registration details here.
Daemon Day (Singapore, 17 September 2024)
Join Blockdaemon on 17th September 2024 at Pan Pacific, Singapore for a day of groundbreaking discussions and networking opportunities with key players in the space. Event partners include AWS and Zodia Custody, while the event supporters include Liquid Collective, M2, MU Digital, Titanium Ventures, and Xangle.
For more info, click here.
Token2049 (Singapore, 18-19 September 2024)
Don't miss out on early bird ticket prices, until July 31! Use Blockhead's exclusive discount code BLOCKHEAD10 for a further 10% off.
All That Matters (Singapore, 16-18 September 2024)
The 19th All That Matters is the gateway to the APAC Music, Sports, Gaming, Marketing, Web3, Arts and Entertainment industries.
Conference by day and live music festival by night, ATM is Asia’s premiere ‘Business 2 Business 2 Fan’ event experience bringing together world class speakers with more than 2,000 senior executives.
Get your tickets now with Blockhead's 15% off code: ATM24BLOCKHEAD15
GeckoCon (Bangkok, 11 November 2024)
GeckoCon returns, and this year we're diving into the revolutionary world of Web3 Gaming! Discover how the fusion of blockchain and traditional gaming is creating a whole new entertainment layer.Don't miss out—visit CoinGecko now to secure your spot in our first ever Hybrid Conference set to take place in Bangkok, Thailand. Or from the comforts of your home!
Get your tickets now with Blockhead's 40% code: BHGC24
[Limited to 30 redemptions, expires 12 September 2024]
CeFi and DeFi B2B Executive Night (Singapore, 16 September 2024)
ChainUp is proud to present the CeFi and DeFi B2B Executive Night, a pivotal gathering for industry leaders and innovators scheduled for 16 September 2024 at CÉ LA VI Singapore, ahead of the F1 Singapore Grand Prix 2024 race weekend
This exclusive Pre-TOKEN2049 event coincides with ChainUp's 7th anniversary, marking a significant milestone in the company’s journey and Blockhead is proud to be the official media partner for this event. We'll see you there!
Get your tickets here.
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