Strong data on the US labor market inhibited interest rate discounts in July, while talks about tariffs were extended to the last moment, i.e. at the moment until August 1 this year. Let’s look at how Fed, cryptocurrency actions and market deal with global macroeconomic chaos.
Macroeconomic data and their impact on markets
This week we have relatively little macroeconomic data, so attention will focus on applications for unemployment benefit on Thursday, as well as on the reports of the FOMC meeting, which will be published on Wednesday. However, experts do not expect any of these data sets to have a real impact on the market, because this week investors attach much more importance to the date of the new Trump tariffs (customs war).
Last week, extremely important data was published, to which the markets have already reacted. First of all, the number of job offers was much higher than expected, which suggests that employers are willing to employ large amounts of new employees. What’s more, last Thursday, the labor market report was published much stronger than expected, from 147 thousand. new jobs (while “only” 100,000), and the unemployment rate, which fell to 4.1%, was forecast, while its increase was forecast to 4.3%. Will you admit that this is a big difference?
However, the report from the labor market is not as strong as the headlines would indicate, because most of the employment growth occurred in the public sector, and the private sector recorded a decrease in employment. It can be a natural relaxation for recent mass layoffs, which was made by the Federal Agency for Slimming American bureaucracy.
However, the Fed may treat these readings as an excuse so as not to reduce interest rates in July. What’s more, the chances for the September reduction also fell (the graphic below), because before recent data readings they were 78%, while now it is 61%. However, the growth occurred in the category that the Fed would not lower the feet in July or in September. This variant already enjoys 36.1% according to experts and investors. Although this data is only a guess, their accuracy was often able to surprise us. That is why we do not intend to underestimate them this time.
In response to the decreasing chances of reduction of interest rates in July and the likely shift of even September cuts, the American dollar index (DXY) slightly reflected, and the profitability of American bonds increased. Risky assets (actions and cryptocurrencies) are still on an upward road.
Trump’s duties and an extended introduction date
In recent days, the Trump administration has shifted the deadline for introducing tariffs from July 9 (tomorrow) to August 1. They also stated that they would send letters to countries as part of the final, bold attack to force them to go to the negotiating table, otherwise the country risk that the tariff tax in the amount of April 2 (i.e. really a lot …) will be imposed on him. The market initially reacted positively to postponing the date to August 1, but since then there were not many reactions to messages about tariffs. Investors have somewhat overlooked the change of administration and it seems that they have accepted the fact that a tariff rate of 10-20%will be implemented, and each aggressive tone towards other countries is Trump’s negotiating tactics.
One of the aspects that you should undoubtedly be careful is that if the deadline for introducing tariffs can be moved once, why can’t it be done several times? This is important because it extends the time to formulate new trade agreements, and therefore the Fed may not get a brightness he is looking for in a short period. The result of such activities may be a longer suspension of discounts by a federal reserve, or a change in the approach and work with the data he receives. At this moment, the Fed tries to predict the future and partially ignores the data, fearing that the tariffs can be entered at any time.
If the Fed decides to work with the data he has and analyzes the effects of the tariffs, it will probably begin to reduce interest rates in September (or in October), and this will be very positive for risky assets such as cryptocurrencies. However, if Powell decides for a longer break (waiting for the effects of the duties to appear in the data), it can be a serious opponent for digital assets. Risky markets are already recorded quite high, so a potential decline would be strongly felt.
What do we tell us about the current situation of cryptocurrency charts?
Let’s look at several key cryptocurrency indexes now to get a better picture of the situation on the digital assets market. To this end, we will explore the flows of ETF funds, the domination of Bitcoin and Total3 (total market capitalization, excluding market capitalization BTC and ETH).
We still see the positive flows of ETF Bitcoin, which helped maintain a price at ~ $ 110,000.
The domination of Bitcoin has recently reached a new peak of the cycle, i.e. 66%, although in recent days it broke slightly below its local upward trend line. In this environment, it can be expected that ALTY, and in particular the most risky like memecoins, will bleed strongly.
Despite this assumption, Total3 has maintained the support zone of 784 – 807 billion USD very well, and now he is trying to attack its inheritance trend line, which is of course a very bullish signal. If he manages to do this and reach USD 880 billion, he will probably create a bull’s leg in the coming weeks, which will significantly increase the field for Altcoins to achieve better results.
What awaits us in the near future on the cryptocurrency market?
The market looked more and more bullfare last week, but stronger than expected employment data was slightly stopped by the rally of digital assets, because the date of interest rate reductions was slightly shifted in time.
This potentially announces a more unstable period in the coming weeks, even if it is still possible that the leading cryptocurrencies can stand out at this time. The rest, i.e. altcoins, will catch up after a greater confirmation by FED members that interest rates are coming. It is possible that Powell will use the annual Jackson Hole event (mid -August) to manage the first reductions this year in September.
Extending the deadline for introducing tariffs also adds some uncertainty as to how the Fed will behave in connection with this. Will they start working with the data they receive, or will they continue to refrain until they gain more clarity about the tariff situation? Fed’s statements should be carefully followed in the coming weeks to get more signals about how the FED interprets the extended period of tariff introduction and what this may mean for potential interest rate reductions. Remember that Powell himself said that the Fed would probably lower his feet now, if not for the tariffs and their potential effects.
In general, the situation still remains optimistic, and looking at the next 12 months, as many as 5-7 interest rate discounts, which should significantly drive the bull market.
