Macro Preview
Market Sentiment Index: 80 (Previous Value) → 85 (Current Value)
Bullish Sentiment:
The proportion of out-of-the-money call options in the options market has significantly increased.
Large inflows into ETFs support the upward movement of cryptocurrency prices.
Tension in the Middle East stimulates BTC's safe-haven asset attributes.
Daily moving averages are about to show a bullish arrangement.
Bearish Sentiment:
66000 gathers a large number of high-leverage positions, having a significant attraction on price.
The pressure of U.S. stock market pullbacks may pose resistance to BTC's upward movement.
Interpretation of Macro Events
1. Federal Reserve Rate Cuts, Neutral Interest Rates, and Market Uncertainty
Since the Federal Reserve's significant rate cuts in September 2023, the market's response to the U.S. economy has been complex and uncertain. Although U.S. Treasury yields have risen, the stock market continues to focus primarily on the resilience of American consumers, the strong performance of the labor market, and the economy's better-than-expected elasticity. While it seems that rate cuts have boosted the economy in the short term, numerous risks still lurk behind, especially regarding the uncertainty surrounding neutral interest rates.
Figure: U.S. - Neutral Interest Rate vs. Actual Benchmark Interest Rate Source: Macromicro @10xWolfDAO Compilation
Definition of Neutral Interest Rates and Challenges for the Federal Reserve
Neutral interest rates refer to the ideal interest rate level that maintains stable economic growth without triggering inflation. The New York Fed considers various data, including actual GDP, inflation, and the federal funds rate, when calculating neutral interest rates. Although neutral interest rates are a theoretical concept that is difficult to measure precisely, their importance is undeniable—they are a key reference indicator for the Federal Reserve in formulating monetary policy.
However, with the rapid changes in the economic situation, predicting neutral interest rates has become increasingly difficult. Factors such as supply chain disruptions caused by the COVID-19 pandemic, new inflation pressures, and expanding government deficits have complicated the calculation of neutral interest rates. Morgan Stanley's portfolio manager Vishal Khanduja specifically pointed out that the Federal Reserve may lower rates below neutral interest rates during the rate-cutting process, which presents a more concerning risk for the market.
The Double-Edged Sword of Rate Cuts: Potential Risks in Bond and Stock Markets
If the Federal Reserve's rate-cutting actions exceed market expectations, leading to excessively low interest rates, the first market to be impacted may be the bond market. An overly accommodative monetary policy will depress bond yields, causing turmoil in the bond market. If inflation resurges, the risks will quickly spread to the stock market and foreign exchange market, causing broader market volatility.
In this context, Khanduja pointed out that the massive budget deficit of the U.S. federal government has increased the difficulty of modeling neutral interest rates, making the Federal Reserve's monetary policy decisions increasingly challenging. He warned investors to remain highly vigilant about future policy directions, as the market may soon experience severe volatility.
Internal Conflicts and Policy Uncertainty of the Federal Reserve
There are clear divisions within the Federal Reserve regarding neutral interest rates and their response policies. For instance, in the latest Federal Reserve meeting minutes, Governor Bowman opposed the rate cuts, becoming one of the few officials in recent years to publicly disagree with policy views. Atlanta Fed President Bostic also stated that he prefers to keep interest rates unchanged in the remaining two policy meetings of this year.
These disagreements not only reflect differing views within the Federal Reserve regarding the economic outlook but also illustrate the market's divergence on future policy directions. The volatility of economic data and the differences of opinion among policymakers pose a significant challenge for the Federal Reserve in determining neutral interest rates. As Federal Reserve Chairman Powell said, the Federal Reserve is 'navigating by the stars under cloudy skies,' meaning that the policy-making process is filled with uncertainty.
Impact of Neutral Interest Rates on the Future Economy
Although the exact level of neutral interest rates cannot be precisely determined, its impact on the market and policy cannot be ignored. Recent economic data shows that the U.S. labor market remains strong, with a declining unemployment rate and a slight increase in wage growth. This data has raised concerns among some economists about whether the Federal Reserve has over-lowered interest rates, especially in the context of an economic recovery that exceeds expectations. If the Federal Reserve is excessively accommodative, it could lead to inflation rising again.
2. BTC/U.S. Stocks and Gold Market Trends
BTC has recently maintained a significant correlation with the NASDAQ market; therefore, this U.S. stock market pullback has also put substantial pressure on BTC's upward trend. The turmoil in the Middle East has once again made BTC a safe-haven asset, and the support from endogenous momentum combined with the rise in U.S. stocks is likely to break through previous highs, ending the nearly half-year consolidation trend.
Figure: BTC/NASDAQ and Gold Price Volatility Comparison Source: Tradingview @10xWolfDAO Compilation
3. Middle East Situation
Figure: Representative Figures in the Middle East Source: Internet @10xWolfDAO Compilation
The Death of Yahya Sinwar and the Future Course of the Gaza War
Israel successfully killed Hamas leader Yahya Sinwar, marking a significant victory for Israel in the Gaza conflict. However, the future course of the war is fraught with uncertainty, especially as Netanyahu's decisions will have profound implications for the entire Middle East situation. Here are two possible development paths:
1. Declare victory and seek a ceasefire
Sinwar's death provides Israel with a potential turning point. U.S. President Biden and senior officials believe this event creates an opportunity to release Israeli hostages and end the war. Biden hopes to leverage this moment to push for a political solution, improve humanitarian conditions in Gaza, and achieve a ceasefire through international mediation. Many in the Israeli military and intelligence community also believe that a ceasefire is the only way to save the remaining hostages.
Sinwar's extreme position within Hamas made him the biggest obstacle to any ceasefire agreement. Thus, his death may provide an opportunity for a more pragmatic political leadership within Hamas, especially for those leaders in exile in Qatar. Reduced military pressure in Gaza will help accelerate ceasefire negotiations, while alleviating the diplomatic pressure from the international community, particularly the U.S.
2. Continue the fight, targeting Hamas's remaining forces
However, many supporters within Netanyahu's right-wing coalition oppose reaching any form of ceasefire agreement with Hamas, especially those who wish to completely eliminate Hamas's influence. Although Sinwar's death is symbolic, it has not entirely weakened Hamas's combat capabilities. The Israeli military continues to believe that Hamas still possesses sufficient military strength in Gaza to threaten the establishment of any alternative government.
Netanyahu may choose to continue military operations to further weaken Hamas, especially as his public support rises. The continuation of fighting will indicate Israel's determination to diminish Hamas's military capabilities, ensuring they no longer pose a threat. This means the Gaza War may not end quickly, and Israel may continue to apply greater military pressure on Hamas, potentially lasting over a year.
Future Course of the Gaza War
The future course of the Gaza War will depend on Netanyahu's decisions. If he chooses to negotiate with Hamas and push for a ceasefire under international pressure, the war may gradually de-escalate after releasing hostages. If Netanyahu insists on continuing to strike Hamas, the war may prolong and involve larger military actions against Iran and its proxy Hezbollah. In any case, Sinwar's death marks a critical turning point in the war, but not its end.
4. Macro Radiation Market
Figure: BTC Daily Chart Source: Tradingview @10xWolfDAO Compilation
BTC reached the 68000 support-resistance level on Friday, and the moving averages are about to form a bullish arrangement. It is crucial to monitor whether it can stabilize above 68000. If it tests and falls below this level a second time, it may drop back to 65000. If it stabilizes above 68000 within this week, there is a high probability of a rapid rise to 72000.
(WolfDAO reminds: Market analysis is for cryptocurrency market research only and does not directly constitute investment advice)
Special Thanks
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Written by: Sylvia / Mat / WolfDAO
Edited by: Punko
Thanks to the above partners for their outstanding contributions to this macro market edition.
