Powell's latest speech indicates that the rate cut cycle is imminent, but the market is also concerned about problems in the U.S. macro economy. The interplay between trading rate cuts and trading recession logic has increased volatility in the global financial market; Nvidia's latest financial report was better than expected but could not prevent market disappointment and hesitation; the cryptocurrency market is strongly tied to macro trends, and it is advised to wait patiently, reduce operations, and pay attention to good opportunities for building positions in Ethereum in the second half of the year.
At the beginning of August, the U.S. released the latest non-farm payroll data for July: the non-farm employment population grew by only 114,000, significantly lower than the expected 175,000 and a sharp decline from the previous value of 206,000. As soon as the data was released, it immediately raised concerns about a recession in the U.S. economy, directly impacting the subsequent global asset crash over the next two days. However, amid the panic, it also provided investors with more ample expectations for rate cuts, hoping that global liquidity would enter a new expansion cycle.
With the cooling of the job market, the CPI data has unexpectedly dropped, like a coordinated battle: the latest CPI in the U.S. for July grew by 2.9% (expected 3.0%), and the market immediately bets on the probability of a rate cut in September. In the subsequent FOMC meeting, Powell finally indicated that the rate cut cycle is about to begin: "I am increasingly confident that inflation will return to 2%; now is the time to adjust policy." This has undoubtedly signaled to the market that a rate cut is imminent in September.
It has been four years since the Federal Reserve last cut interest rates (March 2020). However, unlike the last time, this rate cut is preventive, while the last one was an emergency relief cut due to the pandemic.
Preventive rate cuts refer to reducing interest rates before a significant economic crisis occurs to prevent potential economic risks. From historical data, past rate cuts do not necessarily lead to market corrections, and generally, relief-style cuts tend to result in economic recessions and bear markets, while preventive cuts lead to bull markets. It can be said that it is not the rate cuts that lead to bear markets, but rather the problems in the economy that bring about bear markets, which are unrelated to the rate cuts.
From the Sam indicator's perspective, the United States may indeed be on the brink of recession. The Sam indicator refers to the situation where, once the current three-month moving average of the unemployment rate exceeds the lowest three-month moving average from the past 12 months by 0.5% or more, it signals that a recession may begin. According to data from 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 state of the economy.
Therefore, regarding whether the U.S. economy will truly enter a recession, there is no need to rush to a conclusion. Let's observe the Federal Reserve's subsequent actions. If the rate cut in September exceeds expectations, then there may indeed be some issues with the U.S. economy. According to the FedWatch Tool, the market currently leans more towards a 25-basis-point cut rather than a 50-basis-point cut. The extent of the rate cut and economic recession are inversely related; a recession negatively impacts asset prices but leads to larger rate cuts, which benefits asset prices, and vice versa. We need not worry too much; we should wait for changes in the market.
(Source: FedWatch Tool)
In August, global stock markets experienced significant volatility; global investors have gone through an unforgettable month. On August 5, the Nikkei 225 plummeted by 12.4%, dragging down the global market. The Nasdaq index opened down 6.36% that day but was later pulled back up. However, following the panic selling, the global market entered a steady recovery phase, with the Dow Jones Industrial Average even continuing to hit historical highs.
At the moment when the Federal Reserve's policy shifts, coupled with concerns about an economic recession in the United States, it is precisely when the global investor sentiment is most fragile; any slight fluctuation may trigger panic selling. The decline in the Japanese stock market is also influenced by the Bank of Japan's interest rate hike and the continued appreciation of the yen.
The most highly anticipated event is Nvidia's second fiscal quarter earnings report, released after hours on August 28, U.S. time. Nvidia's second fiscal quarter revenue reached $30 billion, a year-on-year increase of 122%, beating the analyst expectation of $28.86 billion; revenue from the data center in the second fiscal quarter was $26.3 billion, a year-on-year increase of 154%, exceeding the analyst expectation of $25.08 billion; for the third fiscal quarter, revenue is expected to be $32.5 billion, fluctuating by 2%, with an analyst expectation of $31.9 billion; revenue from games in the second fiscal quarter was $2.9 billion, a year-on-year increase of 16%, above the analyst expectation of $2.79 billion; the adjusted gross margin for the second fiscal quarter was 75.7%, up from 71.2% in the same period last year, exceeding the analyst expectation of 75.5%; the adjusted earnings per share for the second fiscal quarter was $0.68, up from $0.27 in the same period last year, beating the analyst expectation of $0.64; the net profit for the second fiscal quarter was $16.599 billion, a year-on-year increase of 168%, exceeding the analyst expectation of $14.64 billion; maintaining a quarterly dividend of $0.01 per share; approving an additional $50 billion stock repurchase plan.
However, such an unexpected financial report did not bring good feedback to the market, as Nvidia fell by 6.89% after hours. Currently, the market is primarily worried about Nvidia's future growth potential, leading to market sell-offs. Nvidia's performance continues to exceed expectations, but the marginal effect on investor sentiment is diminishing, ultimately forcing investors to downplay AI logic while macro considerations begin to dominate trading logic. We are currently on the brink of a macro liquidity transformation, and the conflicting policies of the U.S. and Japanese central banks cast a thick shadow over the investment environment, making it difficult to see the subsequent trends.
However, WealthBee believes that AI remains the mainstream narrative, and Nvidia may not continue the previous bull run but will instead oscillate amid uncertainty, gradually clearing out previous profit-taking positions. As mentioned earlier, preventive interest rate cuts often do not lead to bear markets, and we may still hold expectations for the continuation of a bull market.
The cryptocurrency market performance in August was not friendly. The global asset crash on August 5 also affected Bitcoin, whose price fell below $50,000 at its lowest point. It then began to oscillate upward, reaching a high of $65,000 after the Federal Reserve signaled a rate cut, but it is currently still hovering around $60,000.
Like the stock market, the cryptocurrency market is also facing hesitations from investors amid an uncertain macro environment. However, prices cannot reflect the true market environment. According to news from ChainCatcher, the number of Bitcoin addresses holding at least 10 BTC has decreased in 2024. Earlier this year, the number of such addresses was about 155,500, declining in the first quarter and reaching a low of about 152,600 in late March. This decline contrasts with the price trends of Bitcoin during the same period, reflecting profit-taking by smart money. However, as Bitcoin's price stabilized around $60,000, the number of addresses holding more than 10 BTC reversed in August, rising back to 153,500, indicating that some addresses have started to bottom-fish and build positions amid the fluctuations. The U.S. Bitcoin spot ETF is also experiencing continued net inflows.
Currently, the cryptocurrency market has not seen new narratives, thus Bitcoin's price trend is aligning with the macro environment. The economic conditions in the United States determine Bitcoin's short- to medium-term trends. Predicting the economic situation in the U.S. is not easy, but the massive amount of money released by this preventive interest rate cut will likely drive the price of Bitcoin, a fixed-quantity asset, higher, as it cannot dilute inflation with quantity and can only achieve a greater increase than inflation.
However, Ethereum's performance has not been as good as Bitcoin's. As of the 29th, the U.S. Ethereum spot ETF has seen a consecutive net outflow for 9 days.
Currently, the ETH/BTC exchange rate has reached 0.4, marking a new low since 2021. The continuous weakness of Ethereum is due to multiple factors, with Grayscale's ongoing sell-off being one of the core reasons. Industry KOL and founder of 10k ventures, Zixi.eth, stated in his analysis that the second half of this year is very suitable for building positions in ETH. After ETH began trading on Nasdaq on July 23 this year, it will repeat the process of Grayscale selling BTC earlier this year, which may last for half a month to one month until the market can absorb Grayscale's sell-off. Once this critical point is reached, it will be a very good time to build positions. WealthBee suggests paying attention to the BTC/ETH exchange rate in the second half of this year; once Grayscale's net outflow ends, it will be the right time to build positions.
Therefore, since cryptocurrencies are currently tied to macro factors, we just need to hold steady and reduce operations. At the same time, pay attention to the trends of oversold assets represented by ETH, which often have stronger rebound momentum.
The Federal Reserve's rate cut decision has ignited market enthusiasm, bringing about a positive transformation in the cryptocurrency sector. As inflation slows and the job market stabilizes, investor sentiment has shifted from pessimism to optimism, anticipating that asset prices will experience a strong rebound after a brief adjustment. Bitcoin has demonstrated its appeal as a safe-haven asset, even gaining institutional support amid volatility, indicating that its value will be further confirmed and enhanced. Especially as Grayscale's sell-off of ETH comes to an end, changes in the ETH/BTC exchange rate will become a signal for investors not to miss out on building positions. In this wave of monetary easing, the cryptocurrency market, particularly Bitcoin and Ethereum, will usher in a new growth cycle, providing valuable entry opportunities for investors.
Text: Chief Researcher Amanda HU
