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After strong US data cast doubt on bets that the Federal Reserve will cut interest rates significantly next month, stocks dropped, and benchmark Treasury bond rates climbed back over 4%.
The market's see-saw is likely to continue, driven by traders taking opposing positions on the news between large Fed rate cut bets and the resilience of the US economy.
US Treasury rates have returned to 4%, a level last observed in August, as the likelihood of another large interest-rate cut by the Fed has diminished by a blow-out employment report.
Following unexpectedly strong September payrolls data, bonds fell further on Monday, continuing a fall that began late last week.
Yields on the 10 and 2-year bonds surged, reaching over 4% and 9%, respectively.
Cryptos, though, got a boost from solid US data, with Bitcoin regaining most of its losses from last week's sell-off on the widening regional conflict in the Middle East.
Bitcoin gained about 1.4% over the weekend after falling about 1.5% in the past week.
While cryptos started October - a historically good month for digital assets - on the back foot, solid US payrolls data boosted investor confidence in digital assets in hopes of a year-end rally from more Fed rate cuts.
On the Fed front, after expecting a 50 basis point move, swaps markets have shifted to pricing in a rate drop of less than a quarter point in November.
Uncertainty about the Fed's future actions is reflected in the movements.
The futures market no longer anticipates a half-point drop this year, and the formerly assured quarter-point decrease in November is now projected at an 86% chance.
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At most, 50 basis points of cuts are implied through the end of the year, which is a first since August 1. In addition to the Fed's large rate cut in September, a strong US economy and falling inflation, stock markets have lately surged to record highs.
Nevertheless, the changing assumptions are that rates are anticipated to put additional pressure on these markets now. After a wild year in the stock market so far, traders face several concerns, including economic anxiety, interest rate volatility, and election-related stress. However, corporate earnings—possibly the most critical factor in determining whether stocks can continue rolling—will be scrutinized this week.
The market capitalisation of the S&P 500 Index reached over $8 trillion in 2024, having increased by 20%. Reasons for the gains mainly include optimistic profit forecasts and anticipation of easing monetary policy.
However, escalating geopolitical concerns have emerged, threatening the risk rally.
Investors are now waiting for Israel's reaction to the latest Iranian missile strike that has caused crude oil prices to surge, approaching $80 per barrel.
The crude rally has invited 'oil tourists' to jump into trading the commodity. The so-called 'oil tourists' include stock and digital assets traders, with retail investors jumping onto the bandwagon to cash in on the best rally in two years.
The rise in crude oil reflects the possibility of rising inflationary pressures, which might increase the pressure on global central banks to pivot to easing policy.
For now, though, cryptos have found a sweet spot on hopes of a US economy manoeuvring between slowing price pressures and an economy that is now expected to avoid a crash landing.
Goldman Sachs is the latest to downgrade the possibility of a US recession over the next year, betting on the Fed to cushion any economic slowdown with rate cuts, albeit smaller ones than previously expected.
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The expectation is for cryptos to move higher and through technical resistance levels. Bitcoin is expected to rise again towards $70,000, although the token may encounter some resistance on its way.
Elsewhere
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Blockcast
On this week’s Blockcast, we speak with Luca Prosperi, co-founder and CEO at M^0 Labs, whose man-bun and genial personality belies battle scars from almost 2 decades of traditional banking, helping to build MakerDAO and, a health scare. Luca dissects the concept of money creation and some of the foundations behind M^0’s quest to build infrastructure for a crypto dollar.
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Events
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
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[Redacted] (Bangkok, 9-11 November 2024)
The [REDACTED] conference is bringing together the brightest minds in technology for a transformative three-day event from November 9-11, 2024, at the Avani Riverside hotel. This gathering will take place just ahead of Devcon and promises to be a pivotal moment for the convergence of artificial intelligence and Web3.
Interested readers can apply for free tickets here, and sign up for the hackathon here.
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