Powell's latest speech clearly indicates that a rate cut cycle is coming, but the market is also worried about problems in the U.S. macro-economy. The two logics of rate cuts and recession are intertwined, increasing the volatility of global financial markets; Nvidia released its latest financial report, which exceeded expectations but could not stop the market's disappointment and hesitation; the crypto market is strongly bound to the macro trend, and it is recommended to wait quietly, reduce operations, and pay attention to the opportunity to build a position in Ethereum in the second half of the year.
In early August, the United States was the first to release the latest non-farm data for July: non-farm employment increased by only 114,000, significantly lower than the expected 175,000, and a sharp drop from the previous value of 206,000. As soon as the data came out, it immediately triggered market concerns about the US economic recession and directly affected the global asset plunge in the following two days. However, in addition to panic, it also brought investors more expectations of interest rate cuts, and expected that global liquidity would enter a new expansion cycle.
As the job market cools down, CPI data fell beyond expectations as if "fighting a coordinated battle": the latest US CPI in July increased by 2.9% (expected 3.0%), and the market immediately bet on the probability of a rate cut in September. At the subsequent FOMC meeting, Powell finally made it clear that the rate cut cycle is about to begin: "I am increasingly confident that inflation will return to 2%, and now is the time to adjust policy." This has undoubtedly shown the market that the September rate cut is about to begin.
It has been four years since the last interest rate cut by the Federal Reserve (March 2020). However, unlike the last time, this rate cut is a preventive one, while the last time was due to the emergency relief-style rate cut by the Federal Reserve due to the epidemic.
The so-called preventive interest rate cut refers to a rate cut before the economy has an obvious crisis in order to prevent possible economic risks. From the data backtest, previous interest rate cuts may not necessarily lead to a market correction, and generally, bailout-style interest rate cuts will lead to economic recession and a bear market, while preventive interest rate cuts will lead to a bull market. It can be said that it is not the interest rate cuts that lead to the bear market, but the economic problems that have led to the bear market, which has nothing to do with the interest rate cuts.
Judging from the Sam's Index, the United States may indeed be on the verge of a recession. The Sam's Index refers to the fact that once the current three-month moving average of the unemployment rate exceeds the lowest three-month moving average in the past 12 months by 0.5% or more, it indicates that a recession may begin. According to 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 situation of the economy.
Therefore, there is no need to rush to draw a conclusion on whether the US economy will really enter a recession. Let's wait and see what the Fed does next. If the rate cut in September exceeds expectations, then there may be some problems with the US economy. From the FedWatch Tool, the market is more inclined to cut interest rates by 25 basis points rather than 50 basis points. The rate cut and economic recession are in a relationship of one rising while the other falling. Recession is bad for asset prices, but it will lead to a larger rate cut, which is good for asset prices, and vice versa. We don't need to worry too much and wait for market changes.
(Source: FedWatch Tool)
In August, the global stock market experienced huge fluctuations, and global stock investors experienced an unforgettable month. On August 5, the Nikkei 225 plummeted by 12.4%, bringing down the global market. The Nasdaq index opened 6.36% lower that day, but then pulled up. However, after the panic selling, the global market entered a steady recovery, and the Dow Jones Industrial Average even continued to set a new record high.
The Fed's policy shift, coupled with concerns about a U.S. recession, is the most vulnerable time for global investors, and any slight fluctuation could trigger panic selling. The reasons for the decline in the Japanese stock market include the Bank of Japan's interest rate hike and the continued appreciation of the yen.
The most anticipated is Nvidia's second-quarter financial report released after the market closed on August 28, U.S. time. Nvidia's second-quarter revenue was $30 billion, a year-on-year increase of 122%, and analysts expected $28.86 billion; second-quarter data center revenue was $26.3 billion, a year-on-year increase of 154%, and analysts expected $25.08 billion; third-quarter revenue is expected to be $32.5 billion, with a fluctuation of 2%, and analysts expected $31.9 billion; second-quarter game revenue was $2.9 billion, a year-on-year increase of 16%, and analysts expected $2.79 billion; Adjusted gross profit margin in the second quarter was 75.7%, compared with 71.2% in the same period last year, and analysts expected 75.5%; adjusted earnings per share in the second quarter were $0.68, compared with $0.27 in the same period last year, and analysts expected $0.64; net profit in the second quarter was $16.599 billion, up 168% year-on-year, and analysts expected $14.64 billion; the quarterly dividend per share was maintained at 1 cent; and an additional $50 billion stock repurchase plan was approved.
However, such an unexpected financial report did not bring good feedback to the market, and Nvidia fell 6.89% after the market. At present, the market is mainly worried about Nvidia's weak future growth, which has led to a market sell-off. Nvidia's performance continues to exceed expectations, which has a smaller and smaller marginal effect on investors' psychological stimulation, and ultimately forces investors to downplay AI logic, and macro considerations begin to occupy trading logic. At present, on the eve of macro liquidity changes, the conflicting policies of the US and Japanese central banks have cast a thick shadow on the investment environment, and it may be difficult to see the subsequent trend now.
However, WealthBee believes that AI is still the mainstream narrative at the moment, and Nvidia may not continue the previous bull market trend, but will fluctuate in uncertainty and gradually clear out the previous profit chips. As mentioned earlier, preventive interest rate cuts often do not bring about a bear market, and we may still be able to expect the bull market to continue.
The trend of the crypto market in August was not friendly. The global asset plunge on August 5 also affected Bitcoin. The price of Bitcoin fell below $50,000 at its lowest point, and then began to fluctuate and rebound. After the Federal Reserve released a signal of a rate cut, it rebounded to a high of $65,000, but it is still hovering around $60,000.
Like the stock market, the crypto market is hesitant in the uncertainty of the macro environment. But prices do not reflect the real environment of the market. According to ChainCatcher, the number of Bitcoin addresses holding at least 10 BTC has declined in 2024. At the beginning of this year, the number of such addresses was about 155,500, which declined in the first quarter and reached a low of about 152,600 in late March. This decline runs counter to the price trend of Bitcoin during the same period, reflecting profit-taking by smart money. However, as the price of Bitcoin stabilized around $60,000, the number of addresses holding more than 10 BTC reversed in August and rebounded to 153,500, indicating that some addresses have begun to buy the bottom and build positions during the shock. The US Bitcoin spot ETF is also continuing to have net inflows.
There is no new narrative in the crypto market itself, so the price trend of Bitcoin is moving closer to the macro environment, and the US economic situation determines the short-term trend of Bitcoin. The US economic situation is not easy to predict, but the huge amount of money released by the US's preventive interest rate cut is likely to make the price of a fixed amount of assets such as Bitcoin go up. After all, inflation cannot be diluted by quantity, so the only way is to get a higher increase than inflation.
However, Ethereum's performance is not as good as Bitcoin. As of the 29th, the US Ethereum spot ETF has experienced net outflows for 9 consecutive days:
At present, the ETH/BTC exchange rate has reached the 0.4 mark, setting a new low since 2021. There are many factors that lead to the continued weakness of Ethereum, among which Grayscale's continued selling is one of the core reasons. Zixi.eth, the industry KOL and founder of 10k ventures, said in his analysis article that ETH is very suitable for building a position in the second half of this year. After ETH began trading on Nasdaq on July 23 this year, it will repeat the process of Grayscale selling BTC at the beginning of this year. The selling process may last for half a month to one month until the market can catch Grayscale's selling. Once this critical point is reached, it is a very good time to build a position. WealthBee recommends paying attention to the BTC/ETH exchange rate in the second half of this year. Once the Grayscale net outflow ends, it is time to build a position.
Therefore, since encryption is currently tied to the macro, we only need to sit tight and reduce operations. At the same time, pay attention to the trend of oversold assets represented by ETH. Oversold assets tend to have stronger rebound momentum.
The Fed's decision to cut interest rates has ignited market enthusiasm and brought positive changes to the cryptocurrency sector. With inflation slowing and the job market stabilizing, investor sentiment has shifted from pessimism to optimism, and it is expected that asset prices will rebound strongly after a brief adjustment. Bitcoin has demonstrated its appeal as a safe-haven asset, and has been increased by institutions even in volatility, indicating that its value will be further confirmed and enhanced. In particular, with the end of Grayscale's selling of ETH, changes in the ETH/BTC exchange rate will become a signal for investors to build positions that cannot be missed. In this tide of monetary easing, the cryptocurrency market, especially Bitcoin and Ethereum, will usher in a new growth cycle, providing investors with valuable entry opportunities.
