Poor economic data is reviving fears about the weakness of the US economy — and markets aren’t liking it.
The Nasdaq and S&P 500 are down 2.6% and 1.6% respectively on Friday, while Bitcoin and Ethereum have slipped 4.4% and 5.8%, revisiting prices last seen in the August 5 global financial panic. Bitcoin is now at $53,700.
A Thursday US jobs report showed that only 99,000 new jobs were added in August — way below the expected 144,000, and fewer than July’s 111,000 job additions.
“Even more ominous were the reasons given” for the data, Noelle Acheson, former head of market insights for Genesis Global Trading, wrote in her ‘Crypto is Macro Now’ newsletter.
”There is no positive spin at all on the two main reasons given for letting people go — cost cutting and macro conditions (a semantic difference) imply lower earnings expectations,” Acheson added.
Jobs data is particularly important for investors because it signals the health of the economy.
New jobs and low unemployment tend to translate into more dynamic economic activity, while decreasing jobs and rising unemployment rates are warnings the economy is in decline.
Bigger rate cut
Federal Reserve Chair Jerome Powell announced on August 23 that the time had come for the US central bank to cut interest rates — which will make it easier for individuals and companies to borrow money, which in turn will boost the economy.
Like most risk-on assets, Bitcoin tends to perform particularly well when interest rates are low, so cutting rates in a relatively healthy economy is a positive for crypto prices.
But for some, in light of the disappointing jobs news, one rate cut in September might be too little too late to avert a recession.
“If the data suggests the need for larger cuts, then I will support that,” Fed governor Christopher Waller said on Friday.
“I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate,” he added.
On Friday, FedWatch data briefly showed the market pricing in 52% odds of an aggressive 50 basis point cut on September 18, instead of the usual 25. A basis point equals one-hundredth of a percentage point.
At the time of writing, the odds of a 0.5% rate cut have dropped back down to 27%.
“The 50 [basis point] cut might send a wrong message to markets and the economy. It might send a message of urgency and, you know, that could be a self-fulfilling prophecy,” George Lagarias, chief economist at consulting firm Forvis Mazars, told CNBC.
In other words, while rate cuts are positive for crypto, a big rate cut made out of a sense of emergency — to avert a recession — could end up provoking a big market sell-off.
Matt Hougan, chief investment officer at crypto investment firm Bitwise, posted on X that the US central bank was unlikely to make a drastic move.
”0.5% is radical for the Fed,” Hougan wrote. “There’s only one instance in the last 40 years when it has gone 0.5% during a non-emergency. I struggle to see it. Still, it will be nice to move into the rate-cutting cycle.”
Tom Carreras writes about markets for DL News. Got a tip about the US economy and Bitcoin? Reach out at tcarreras@dlnews.com
