Week-over-week performance:
- BTCUSD: 62,741 / +2.87%
- ETHUSD: 2,677 / +0%
- US10Y: 3.82% / -6 bps
- DXY: 100.85 / -1.12%
- GOLD (USD/OZ): 2,513 / +0.64%
- SPX: 5,616 / +0.14%
- NDX: 19,516 / -1.26%
- DVOL: 49.55 / -7.93%
- VIX: 16.14 / +10%
Looking Ahead – Economic Calendar:
- Wednesday, 28 August 2024: NVDIA earnings
- Thursday, 29 August 2024: DE CPI, US GDP (2nd revision), US Unemployment Claims, SNB Chairman Jordan speaks
- Friday, 30 August 2024: EU CPI, US Core PCE
On the macro side:
Two significant events from last week warrant discussion, and should be considered in tandem:
1) The US job revision by the BLS, which saw a reduction of 818,000 jobs (-30%)
2) Powell’s speech at Jackson Hole
Powell indicated that it was time to adjust policy (cut rates), but he also emphasised that the Fed is committed to supporting a strong labour market, stating, “We do not seek or welcome further cooling in labour market conditions”. This suggests that the Fed may have overshot in its previous actions and is concerned that the recent employment figures are not an isolated deviation but a sign of underlying weakness.
In response, markets are now pricing in a 71.5% probability of a 25 basis point cut in September and a 28.5% chance of a 50 basis point cut. However, I think the chance of a 50 basis point cut is extremely low, as it could trigger market panic rather than stimulate borrowing.
Chart 1: Fed September decision
The target for 18 December2024 is 425-450 bps (1% lower) and for 10 December 2025 it is 300-325 bps (2.25% lower), suggesting that markets are currently expecting a soft landing.
The Fed remains data dependent and upcoming data will clarify whether the labour market is in good or bad shape. However, the Fed must maintain its credibility and avoid creating the perception of panic.
Powell’s speech had echoes of Mario Draghi’s “whatever it takes” moment, which was certainly enough at the time.
Taking these factors into account, along with the upcoming US election, it is clear that Q4 2024 is likely to be inflationary, which is bullish in the mid-term.
On the FX side:
The US dollar has taken a hit, with the DXY index dropping below 101, signalling a critical level. Recent dollar weakness has been a significant factor in the performance of risk assets. Excluding the sensitivity to this, returns have been flat or negative.
Looking ahead, key data from Switzerland and the European Union will be crucial, as they will influence the interest rate decision in September. Given the strong economic figures, I expect the SNB to cut interest rates further to 1% (25 bps) and maintain them at that level for some time. This would likely weaken the USD, particularly with the USD/CHF pair currently in an uncomfortable range of 0.83-0.85. In the event of a soft landing, I would expect the USD to depreciate further against both the CHF and the EUR.
This base scenario is bullish for risk assets. However, the contra-scenario involves the US entering a recession without a soft landing and the SNB willing to weaken the CHF further.
Chart 2: DXY 1d
On the crypto side:
BTC finally managed to break above the range after Powell’s speech. However, market positioning is still neutral to bearish, with the futures basis remaining flat, and aggressive call selling into Friday’s spot move, leading me to think that the market is positioned for a calm period into the end of the summer.
In contrast, ETH ETF flows remain relatively neutral compared to BTC, which begs the question: Are institutional investors, TradFi, or big-money players truly interested in ETH? I still believe that Solana represents a strong opportunity in this context.
Overall, the current conditions remain bullish for BTC, both as a gold-like asset and as a risk asset.
Chart 3: BTCUSD 1d
Read more News here
