A few days ago, Powell made it clear at the Jackson Hole Central Bank Annual Meeting that it was time for a policy shift, which means that the Federal Reserve is about to start cutting interest rates. The market expects that the probability of the Federal Reserve cutting interest rates in September is 100%. The difference is whether it will be a 25% cut or more.
The cycle of interest rate hikes and maintaining high interest rates has ended, and the cycle of interest rate cuts is about to begin. Let's analyze the impact of interest rate cuts on the market. These are the issues that people are most concerned about in the backstage comments. As usual, try to express your views and provide arguments as concisely as possible, and don't make long speeches.
Is a rate cut a good thing? Is the higher the rate cut, the better?
Interest rate cuts are good news in the short term (2-6 months) and long term (1-2 years), but not necessarily in the medium term (6-12 months).
The interest rate cut makes the cost of funds lower and the market and society have more money. In the short term, the risk market will benefit, because the risk market cares most about expectations. The confirmation of interest rate cuts will make market participants more optimistic about the future. Unless an emergency (economic crisis) occurs, interest rate cuts, like interest rate increases, will take time to be transmitted to society. Therefore, after the interest rate cut cycle begins, it generally takes 1-2 years to have a significant impact on social and economic activities. Therefore, interest rate cuts have a significant impact on social and economic activities. Both short-term and long-term benefits.
This time, the Federal Reserve raises and cuts interest rates based on data, that is, it will only take action when inflation rises significantly or the economy weakens significantly. It is very likely a little late to start cutting interest rates now. I judge that a recession may occur within a few months of starting to cut interest rates. Recession is not terrible. What is terrible is that in the process of recession, some serious crisis events usually break out and impact the market. Therefore, I believe that the market will not rise smoothly during the process of interest rate cuts, and there may even be great risks.
In terms of the extent of the rate cut, the Fed said that September was a "precautionary rate cut", so the usual practice should be to start with 25BP. If the economic data does not deteriorate seriously in the next few months, then maintaining 25BP each time in the early stages of the rate cut will be good for the market. If the economic data suddenly deteriorates, the Fed will start to cut interest rates like it did at the beginning of the epidemic, which will be bad news.
After the 85% drop, it rebounded by nearly 30%. In the past two days, the ultra-short-term market was affected by multiple factors such as profit-taking selling pressure and financial reports. It is normal to have a correction. Don't be alarmed in the spot market.
Is the US recession coming?
Historically, the exact time of an economic recession is usually confirmed several years after the fact. We are not in a God's eye at the moment, and no one can really be sure whether a recession has arrived. However, it is an indisputable fact that the global economy is in recession and all major countries, including Southeast Asia, are suffering.
No matter how pessimistic the internet is, compared to the current "miserable situation" of other countries, the US economy is still relatively strong and resilient, so it is difficult to judge whether the US recession has already arrived. However, with the substantial downward revision of previous economic data, and the triggering of a series of rules symbolizing recession, such as the "Sam's Rule" and the end of the inversion of long-term and short-term interest rates, we are all warning that the risks are increasing.
We still need to pay close attention to the economic situation in the future and do not ignore the lethality of recession to risky assets. As for whether the recession will turn into a long-term crisis or even a reappearance of 1929, we will take it one step at a time and share our views when the time comes.
What will happen to the crypto market after the interest rate cut begins?
The answers to these questions have already been provided in the first two questions. In the short term, the market has relatively good expectations, and long-term capital easing will certainly benefit the market.
Many people have unclear positioning of the crypto market. Some say BTC is digital gold and should be compared to gold; some say it is a technology growth stock; some say it is a reservoir deliberately created by the US government and capital. I think each has its own reason and it cannot be simply judged right or wrong. At present, I think it is more appropriate to regard BTC as a speculative target that is lower in priority than US stocks in the eyes of investors. Don't believe what some people say about hundreds of thousands or even millions. At least it will not be realized for a long time.
Although the crypto market also has its own internal cycles and narratives, it is generally linked to the U.S. stock market. The rise and fall of the U.S. stock market will also affect the rise and fall of BTC. The AI narrative has less and less support for the U.S. stock market. There are only a few companies that benefit from investing in computing power competitions. If there is an economic recession, the decline of the U.S. stock market is a matter of time. By then, can BTC rise to more than 100,000 independently of the decline of the global risk market?
The altcoins have become a tool for project parties and institutions to raise money. This round of bull market has almost no narrative like DeFi in 2020. Whether it is L2, inscriptions or even restaking, they are all the last feathers of hype. It is not to say that there is no market for altcoins. I think there will be a market for altcoins in the future, but it must be a local sector rotation and the market initiated by some projects. It is impossible to reproduce the previous bull market. For altcoins, we should have the mentality of PVP in a zero-sum market and not pour emotions into self-brainwashing.
Other assets
US dollar (oil): The US dollar index DXY fell quite sharply, which is also the market's pricing of the interest rate cut cycle. In the long run, the dollar has begun to weaken, but in the short term, I think the US dollar index has fallen too much, and it is technically difficult to fall below the 100 integer mark immediately. In addition, when the United States starts to cut interest rates, other countries will follow suit, and even cut more vigorously. Previously, Dongda had been holding on to not cutting interest rates in order to stabilize the exchange rate. Now that the United States has started to cut interest rates, we can also happily follow suit.
Finally, every time there is a sharp drop, those who hold orders have to rush to cover their positions. Usually, oil will be at a large premium. This was the case with the 312/519 and 85 plunges a while ago. Therefore, there is no need to be overly pessimistic about the US dollar (oil) in the short term. The decline of the US dollar is not that fast.
Gold: As in the previous point of view, although gold is a safe-haven asset, it depends on the person. As a hard currency, the central bank and large funds make some allocations, but for most ordinary people or the small leeks reading this article, gold is not a safe haven. There is no need to allocate gold at such a high price with a small amount of money. It is better to buy some bonds or hold cash for risk hedging.
Housing: I didn’t want to talk about it, but someone asked me. I didn’t dare to say more because I was afraid of being restricted. Various signs show that the era of large-scale demolition and reconstruction has ended. You can buy for self-use, and there is no need to rush to invest. The trend of falling housing prices will not be reversed so quickly. Try to go to big cities. The quality of public services and living facilities in small places will decline rapidly in the future. Don’t buy old, dilapidated and small houses. Consider whether your income in the next few years can afford the debt.
Let me ask you a question: The recent sharp rise in the prices of meat, fruits and vegetables, does this indicate anything?
Summarize
The next interest rate cut cycle will begin, and a recession may not come yet. We can remain optimistic in the short term. The election is a variable, and if Trump is elected, it will help the crypto market. We should remain vigilant from the end of this year to the beginning of next year, and beware of the outbreak of recession and crisis.
The current environment no longer supports the Federal Reserve's repeated interest rate cuts and hikes like in the 1980s. Once this rate cut begins, it means that a new cycle has begun, and we should remain optimistic in the long term.
This article is only a personal opinion and is not intended as investment advice
