Investors are on edge for what a new regime of loosening monetary policy and rate cuts mean for short term price action of Crypto. While the consensus view is that we see turmoil in risk markets, we think it is valuable to explore the contrarian view in this forecast for a surprise rally in the event of an EARLY rate cut
The Federal Reserve and the Upcoming Rate Cut Decision
Market Scepticism
While the mainstream media suggests a delayed (Nov/Dec) or even absent rate cut in 2024, there is momentum building for an earlier cut. This view likely stems from a misinterpretation of the Fed’s data-dependent policy. The Fed has consistently emphasized that its decisions will be based on incoming economic data, particularly inflation.
Softening Inflation and Economic Data
Recent data signals a significant slowdown in inflation. The June Empire State Manufacturing Survey, (a key indicator), showed a sharp decline in inflationary pressures, with the Prices Received index reaching its lowest level since July 2023. This trend is expected to continue – we also saw June’s Core CPI inflation rate below 3% and CPI broadly drop to 3.3%.
Furthermore, broader economic indicators, such as Citi’s Economic Surprise Index and unemployment claims, also point towards a softening economy. This data suggests the Fed may be compelled to act sooner than expected
Investor Positioning and Optimistic Outlook
Currently, the market anticipates a first rate cut by September with a 65.9% probability. This is likely to increase as incoming data strengthens the case for a rate cut. This shift in sentiment could trigger a significant stock market rally throughout July and August and we anticipate that this will align with a upwards shift from Bitcoin’s long consolidation above 60k.
Portfolio Preparation for the Potential Rally
If we do get a rally in back end of July August, we think BTC and ETH will lead the charge via ETF flows with Crypto broadly getting a kick on the tailwind
Key Takeways:
- While a rate cut is anticipated by the market, the timing remains uncertain
- We believe the Fed will prioritize recent economic data indicating a slowdown.
- An imminent rate cut could trigger a substantial stock market rally.
- Our portfolio positioning reflects our optimistic outlook.
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