Powells latest speech clearly indicates that a rate cut cycle is coming, but the market is also worried about problems in the U.S. macro-economy. The two logics of rate cuts and recession are intertwined, increasing the volatility of global financial markets; Nvidia released its latest financial report, which exceeded expectations but could not stop the markets disappointment and hesitation; the crypto market is strongly bound to the macro trend, and it is recommended to wait quietly, reduce operations, and pay attention to the opportunity to build a position in Ethereum in the second half of the year.
In early August, the United States was the first to release the latest non-farm data for July: non-farm employment increased by only 114,000, significantly lower than the expected 175,000, and a sharp drop from the previous value of 206,000. As soon as the data came out, it immediately triggered market concerns about the US economic recession and directly affected the global asset crash in the following two days. However, in addition to the panic, it also brought investors more expectations of interest rate cuts, and expected that global liquidity would enter a new expansion cycle.
As the job market cools, CPI data fell beyond expectations, just like a coordinated battle: the latest US CPI in July grew by 2.9% (expected 3.0%), and the market immediately bet on the probability of a rate cut in September. At the subsequent FOMC meeting, Powell finally made it clear that the rate cut cycle is about to begin: I am increasingly confident that inflation will return to 2%, and now is the time to adjust policy. This has undoubtedly shown the market that the September rate cut is about to begin.
It has been four years since the last rate cut by the Federal Reserve (March 2020). However, unlike the last time, this rate cut is a precautionary one, while the last time was due to the emergency relief-style rate cut by the Federal Reserve due to the epidemic.
The so-called preventive interest rate cut refers to a rate cut before the economy has an obvious crisis in order to prevent possible economic risks. From the data backtest, previous interest rate cuts may not necessarily lead to a market correction, and generally, bailout-style interest rate cuts will lead to economic recession and a bear market, while preventive interest rate cuts will lead to a bull market. It can be said that it is not the interest rate cuts that lead to the bear market, but the economic problems that have led to the bear market, which has nothing to do with the interest rate cuts.
Judging from the Sams Index, the United States may indeed be on the verge of a recession. The Sams Index refers to the fact that once the current three-month moving average of the unemployment rate exceeds the lowest three-month moving average in the past 12 months by 0.5% or more, it indicates that a recession may begin. According to the Federal Reserve, the current reading is 0.43%. However, the real economic world is complex and a single economic indicator cannot reflect the true situation of the economy.
Therefore, there is no need to rush to draw a conclusion on whether the US economy will really enter a recession. Lets wait and see what the Fed does next. If the rate cut in September exceeds expectations, then there may be some problems with the US economy. From the FedWatch Tool, the market is more inclined to cut interest rates by 25 basis points rather than 50 basis points. The rate cut and economic recession are in a trade-off relationship. Recession is bad for asset prices, but it will lead to a larger rate cut, which is good for asset prices, and vice versa. We dont need to worry too much and wait for market changes.
(Source: FedWatch Tool)
August was a month of great volatility for global stock investors. On August 5, the Nikkei 225 plunged 12.4%, bringing down the global market. The Nasdaq opened 6.36% lower that day, but then recovered. However, after the panic selling, the global market entered a steady recovery, and the Dow Jones Industrial Average even continued to hit a record high.
The Feds policy shift, coupled with concerns about a U.S. recession, is the most vulnerable time for global investors, and any slight fluctuation could trigger panic selling. The reasons for the decline in the Japanese stock market include the Bank of Japans interest rate hike and the continued appreciation of the yen.
The most anticipated event was Nvidia’s second-quarter financial report released after the market closed on August 28, U.S. time. Nvidias second-quarter revenue was $30 billion, up 122% year-on-year, while analysts expected $28.86 billion; data center revenue in the second quarter was $26.3 billion, up 154% year-on-year, while analysts expected $25.08 billion; third-quarter revenue is expected to be $32.5 billion, up or down 2%, while analysts expected $31.9 billion; second-quarter gaming revenue was $2.9 billion, up 16% year-on-year, while analysts expected $2.79 billion; second-quarter adjusted gross profit margin was 75.7%, compared with 71.2% in the same period last year, while analysts expected 75.5%; second-quarter adjusted earnings per share were $0.68, compared with $0.27 in the same period last year, while analysts expected $0.64; second-quarter net profit was $16.599 billion, up 168% year-on-year, while analysts expected $14.64 billion; quarterly dividend of 1 cent per share was maintained; an additional $500 million was approved $1 billion share repurchase program.
However, such an unexpected financial report did not bring good feedback to the market, and Nvidia fell 6.89% after the market. At present, the market is mainly worried about Nvidias weak future growth, which has led to a market sell-off. Nvidias performance continues to exceed expectations, which has a smaller and smaller marginal effect on investors psychological stimulation, and ultimately forced investors to downplay AI logic, and macro considerations began to occupy trading logic. At present, on the eve of macro liquidity changes, the conflicting policies of the US and Japanese central banks have cast a thick shadow on the investment environment, and it may be difficult to see the subsequent trend now.
However, WealthBee believes that AI is still the mainstream narrative at the moment, and Nvidia may not continue the previous bull market trend, but will fluctuate in uncertainty and gradually clear out the previous profit chips. As mentioned earlier, preventive interest rate cuts often do not bring about a bear market, and we may still have expectations for the continuation of the bull market.
The trend of the crypto market in August was not friendly. The global asset plunge on August 5 also affected Bitcoin. The price of Bitcoin fell below $50,000 at its lowest point, and then began to fluctuate and rebound. After the Federal Reserve released the signal of a rate cut, it rebounded to a high of $65,000, but it is still hovering around $60,000.
The crypto market is like the stock market, and investors are hesitant in the uncertainty of the macro environment. But prices do not reflect the real environment of the market. According to ChainCatcher, the number of Bitcoin addresses holding at least 10 BTC has declined in 2024. At the beginning of this year, the number of such addresses was about 155,500, and it declined in the first quarter, reaching a low of about 152,600 in late March. This decline runs counter to the price trend of Bitcoin during the same period, reflecting profit-taking by smart money. However, as the price of Bitcoin stabilized around $60,000, the number of addresses holding more than 10 BTC reversed in August and rebounded to 153,500, indicating that some addresses have begun to buy the bottom and build positions during the shock. The US Bitcoin spot ETF is also continuing to have net inflows.
There is no new narrative in the crypto market itself, so the price trend of Bitcoin is moving closer to the macro environment, and the US economic situation determines the short-term trend of Bitcoin. The US economic situation is not easy to predict, but the huge amount of money released by the USs preventive interest rate cut is likely to make the price of a fixed amount of assets such as Bitcoin go up. After all, inflation cannot be diluted by quantity, so the only way is to get a higher increase than inflation.
However, Ethereums performance is not as good as Bitcoin. As of the 29th, the US Ethereum spot ETF has seen net outflows for 9 consecutive days:
At present, the ETH/BTC exchange rate has reached the 0.4 mark, setting a new low since 2021. There are many factors that lead to the continued weakness of Ethereum, among which Grayscales continued selling is one of the core reasons. Zixi.eth, the industry KOL and founder of 10k ventures, said in his analysis article that ETH is very suitable for building a position in the second half of this year. After ETH began trading on Nasdaq on July 23 this year, it will repeat the process of Grayscale selling BTC at the beginning of this year. The selling process may last for half a month to one month until the market can catch Grayscales selling. Once this critical point is reached, it is a very good time to build a position. WealthBee recommends paying attention to the BTC/ETH exchange rate in the second half of this year. Once the Grayscale net outflow ends, it is time to build a position.
Therefore, since encryption is currently tied to the macro, we only need to sit tight and hold on, and reduce operations. At the same time, pay attention to the trend of oversold assets represented by ETH, which often have stronger rebound momentum.
The Feds decision to cut interest rates has ignited market enthusiasm and brought positive changes to the cryptocurrency sector. With inflation slowing and the job market stabilizing, investor sentiment has shifted from pessimism to optimism, and it is expected that asset prices will rebound strongly after a brief adjustment. Bitcoin has demonstrated its appeal as a safe-haven asset, and has been increased by institutions even in volatility, indicating that its value will be further confirmed and enhanced. In particular, with the end of Grayscales sell-off of ETH, changes in the ETH/BTC exchange rate will become a signal for investors to build positions that cannot be missed. In this tide of monetary easing, the cryptocurrency market, especially Bitcoin and Ethereum, will usher in a new growth cycle, providing investors with valuable entry opportunities.
