Market Wrap: Markets Seem Hopeful the Fed Will Temper Rate Increases That Crushed Prices
Unexpectedly poor data on U.S. job creation spurs speculation the worst of the bear market may be over.
Bitcoin and ether rose on Tuesday, logging a second consecutive day of gains.
Bitcoin’s (BTC) price advanced 2.8% on Tuesday, building on Monday’s 2.7% gain. The largest cryptocurrency by market capitalization got back above $20,000. Prices rose 0.57% during the 13:00 UTC (9 a.m. ET) hour, around the time the U.S. stock market opens. Trading volume was double what’s typical around then.
Ether’s (ETH) price increased 2.4% on moderate volume. Unlike BTC, ETH started the 13:00 UTC (9:00 a.m. ET) hour trading slightly negative. ETH’s daily correlation coefficient with BTC has subsided recently, declining to 0.76 from 0.95 on Sept. 28. (Readings of 1 show two prices are moving in lockstep.)
The CoinDesk Market Index (CMI), a broad-based market index that measures performance across a basket of cryptocurrencies, recently increased by 1.89%.
Economic Calendar: The number of job openings in the U.S. declined to 10.1 million in August, the lowest since June 2021, according to the Job Openings and Labor Turnover Survey (JOLTS) published Tuesday. The figure had been estimated at 10.8 million.
This is significant for cryptocurrencies because the unexpectedly large decline could, in theory, prompt the Federal Reserve to pivot away from aggressive rate hikes to reductions sooner than expected.
U.S. Equities: Traditional stocks climbed for a second consecutive day, as the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 increased 2.8%, 3.3% and 3%, respectively.
Commodities: Energy markets rose again on Tuesday ahead of potential OPEC supply cuts, with WTI crude and European Brent crude, two widely watched measures of oil markets, increasing 3% and 3%, respectively. Natural gas prices rose 5.4%
In metals, copper futures, often viewed as a signal for economic growth, rose 2.6%, while gold, which is viewed as a haven, increased 1.8%.
● Bitcoin (BTC): $20,379 +4.2%
● Ether (ETH): $1,360 +3.0%
● CoinDesk Market Index (CMI): $989 +3.0%
● S&P 500 daily close: 3,790.93 +3.1%
● Gold: $1,735 per troy ounce +2.5%
● Ten-year Treasury yield daily close: 3.62% −0.2
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
BTC rises, seemingly on hopes that the Federal Reserve will “pivot”
Crypto markets traded higher on Tuesday on what appears to be expectations the U.S. Federal Reserve will pivot to a more accommodative monetary policy, lowering interest rates instead of raising them.
The Bank of England’s (BOE) announcement last week that it will begin to purchase bonds in unlimited quantities, injecting money into the economy rather than removing it, raised the possibility that the U.S. will follow suit.
Still, the CME FedWatch tool (which tracks the odds of Fed moves on rates via trading in derivatives markets) doesn’t really reflect that, assigning a 59% probability to the Fed’s Federal Open Market Committee raising rates 0.75 percentage point, or 75 basis points, in November. The current probability is down from 62.5% before the BOE’s announcement.
On Tuesday, Fed Bank of New York President John Williams indicated that the bank still has “a significant ways to go,” adding that current monetary policy is not restricting growth.
Fed Vice Chair Lael Brainard indicated on Friday that “monetary policy will need to be restrictive for some time,” and that the Fed will avoid “pulling back prematurely.” Still she also acknowledged that the FOMC needs to be “attentive to financial vulnerabilities.”
Following the JOLTS report, markets appeared to be pricing in the possibility of lower rates.
The U.S. Dollar Index (DXY) shows the dollar recently weakening. BTC and the DXY have maintained an inverse relationship since July.
Technically, the DXY has shown a slight tendency to react to overbought and oversold levels of the RSI (Relative Strength Index). The RSI is a momentum indicator, implying that an asset is overvalued when the level exceeds 70, and undervalued when it falls below 30.
On Sept. 27, the RSI for the DXY was 82 and has since retreated to its current neutral level of 44. Prices for the DXY declined 4%, while BTC rose 4.4% over the same timeframe.
Four recent RSI readings for DXY over 70 (Sept. 6, Sept. 1, Aug. 22 and July 14), showed subsequent seven-day DXY gains of .006%, 1.2%, 0.002% and 2%, respectively.
BTC traders must determine whether a lower DXY resulted from a shift in Fed expectations, or is a response to perceptions that the dollar is overbought, irrespective of the FOMC’s actions.
The BTC price increase appears to be less pronounced than the DXY decrease over the same time period, indicating an additional note of caution to trading these two assets in tandem.
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CoinDesk Market Index
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