A lot of things happened in the investment market this week. First, Europe began to cut interest rates by 25 basis points. The market expects that more countries will follow suit in the future. On Friday night, the U.S. non-farm payrolls and unemployment rate for May were announced. To everyone's surprise, both data increased. After several hours of speculation, the investment market decided to fall while everyone was sleeping. When people woke up in the morning, many gamblers lost their positions.
Many people are actually confused now. Judging from the current situation, it seems that a rate cut is coming, but why is it still falling? In fact, from another perspective, it is not difficult to explain.
We all know that the interest rate hike started with the United States, and Europe followed suit. After all, as an open market, if the euro does not follow the interest rate hike, it may put the euro under pressure, so this is a helpless move. Now that the EU has taken the lead in cutting interest rates, it means that they can basically not bear it. It is foreseeable that more countries will join the interest rate cut camp in the future, so the Fed's interest rate cut this year is a foregone conclusion.
So when will the interest rate be cut? In fact, this mainly depends on the performance of the United States in the current interest rate hike cycle. From the current point of view, the harvest results of the United States on the global economy are not ideal. If we look at the completion rate, I think it is now about 60%, which is still far from the expectation. However, maintaining high interest rates at this time is equivalent to hurting the enemy by 1,000 and hurting oneself by 800. The longer the current high interest rate is maintained, the more damage will be done to the US domestic economy.
For this reason, the unemployment rate is a data that can more easily reflect the current employment situation in the United States. Many KOLs attribute the increase in employment to illegal immigration. In fact, this is only one aspect. The other aspect is the issue of the number of part-time workers and long-term workers. The increase in short-term employment rate actually represents the instability of some jobs, which indirectly reflects the severe situation currently facing the U.S. economy.
Therefore, it can be predicted that the pressure on the United States will continue to increase in the future, which may prompt an earlier interest rate cut.
Once the Federal Reserve announces a rate cut, the world will enter a new era, or cycle, and participants in the early stages of this cycle will seize the opportunity to turn their wealth around.
First of all, it mainly depends on how long the Federal Reserve can hold off on cutting interest rates. We predict that there is a high possibility of a rate cut in the fourth quarter, and there is also a 70% probability in the third quarter.
After the interest rate cut, a large amount of US dollar liquidity will be released and turned to the investment market and the real economy. The world economy will also be like a sweet rain after rain. It is estimated that the first cut may be 25 BP to test the waters. If the effect is good, then the interest rate cut may be temporarily stopped for a relatively long time, because at the current level, the interest rate is still quite high. In fact, everyone is more concerned about the expectation and attitude of the interest rate cut, and may not pay so much attention to the actual interest rate.
As a result, U.S. stocks and cryptocurrencies will naturally usher in a wave of increases, and then some countries that have been devastated by the interest rate hike, such as Japan, India, Southeast Asia, etc., will get some breathing space, and their markets may become active again.
On the contrary, the impact in our country may be smaller. The reason is that on the one hand, there is the issue of decoupling, and on the other hand, the scale of the Chinese market is very large, so the immediate effect will not be apparent right away, and there will be a certain lag effect to slowly affect it.
Foreign immigrants are indeed a good solution to save the US employment rate, and it also provides a direction for the future industrial recovery of the United States.
Impact on Cryptocurrencies
At present, cryptocurrencies, especially BTC, are basically equivalent to a leveraged version of the US stock market. From the trend point of view, the correlation between the two is very high. Old cryptocurrency investors know that when the market went up and down in the past, everyone would analyze the impact of policies or market sentiment on prices. Now more and more people are paying attention to topics such as Federal Reserve data, interest rate hikes and cuts, which to a certain extent shows that core US capital such as Wall Street has deeply penetrated into the crypto field.
This infiltration will also lead to a linkage effect between cryptocurrencies and the stock market. For example, if you originally invested in the U.S. stock index, and then a black swan news suddenly appeared in the market, you might choose to sell it immediately. At this time, you would naturally give instructions to the trading program without thinking twice, resulting in indiscriminate selling. There will also be many automatic trading programs in the market. Once a certain price is triggered, it will cause a chain reaction, resulting in a rapid decline in the market.
The effect of interest rate cuts is obvious. The increase in liquidity will naturally bring benefits to the crypto market. The same is true. The decline caused by unemployment and employment data this time is mainly due to risk aversion caused by market analysis expectations. Because Europe has already started to cut interest rates, everyone's expectations have basically been determined. If there are no accidents, the market will follow its steps, so the overall risk is actually controllable.
In this way, we can predict that if the Federal Reserve releases similar data next time, the market reaction may be much smaller, until it becomes ineffective and finally returns to the path of interest rate cuts.
In other words, this is approaching the last rapid decline in the investment market.
Next, let’s analyze the performance of BTC and ETH. Some people say that ETFs are increasing their holdings every day, so why is the price increase still very small?
Here we think there are two possible factors. The first is that the main funds are still suppressing prices to absorb chips, that is, the chips are not enough. If there is a sharp increase, the cost will increase. Therefore, the increase cannot be too large, and they even hope for a decline.
The second factor may be that the main force did it intentionally, or the selling pressure in the market itself is very large, and the ETF is just an apparent bottoming out, or it may even be a left-hand-right-hand transfer operation.
However, for investors, all the fancy moves are just for the chips in the hands of retail investors. If you hold on to the spot firmly, these things will have no effect on you at all. Similarly, many market makers prefer to hold firmly or not move users for a long time, because this avoids uncontrollable factors and makes it easier for them to manipulate the market.
So when will the market start again? This is also a question that many people are concerned about. We are more inclined to believe that the market will change in July and August. On the one hand, from the perspective of projects, many project parties have begun to release activity announcements or mainnet launch plans at the end of June, which means that the activity of the cottage market may increase at the end of June, raising user sentiment.
On the other hand, the core problem of the market not having a large-scale rise before was that there was no sustainable hype theme, such as DeFi Summer. Now some project parties are also beginning to move, such as AI, GameFi, Restaking, etc., all have opportunities, including the gradual improvement of the underlying public chain and Layer2, and the steady progress of technology. It only takes an opportunity to change from quantitative change to qualitative change.
Furthermore, compared with the last bull market, after the halving, DeFi Summer reached its peak in the second and third quarters. Similarly, in this bull market, it will take some time for BTC halving to rise in market heat. Considering that the BTC halving was delayed for a while this time, coupled with regulatory factors, the market heat may not be as high as before. Therefore, it is normal for the market outbreak to be delayed.