Markets across the globe are in a state of limbo, as investors anxiously await the Federal Reserve’s next move on interest rates. With economic uncertainty growing and the crypto market following traditional markets into a downward trend, the anticipation of the Fed rate cuts has kept traders on edge. The current market setup can be described as ‘Waiting for Godot’. But in contrast to the Samuel Beckett play, markets are awaiting the Fed rate cuts. And hopefully, also unlike in the actual play, the wait will not be eternal.
Market Sentiment Sinks as Economic Jitters and Nvidia Rumors
Over the past week, market sentiment dropped even further. Jitters about the slowing US economy and rumors, later denied by the company, about a subpoena by the Department of Justice issued to AI stock darling Nvidia over an antitrust matter led traditional markets downwards. Crypto markets quickly followed suit. Bitcoin has foreshadowed the slow downward slide of the wider crypto market for weeks. Ever since it lost its parabolic momentum earlier in the year, Bitcoin has trended down. At first, it headed down towards the $60k support. Once it breached the $60k level, and in the absence of any new positive momentum, we are now looking at the $50k price mark. Optimism right now is hard to come by for most traders.
US Jobs Report Looms: A Key Factor in the Fed’s Rate Cut Dilemma
On the macro level, the upcoming US jobs report for August has created further expectations of possible doom and gloom. Economists expect that the August jobs report will show that the labor market is cooling, but not dramatically. Consensus estimates are for a net gain of 160,000 jobs, which would be an increase over July’s estimated 114,000 gain according to FactSet estimates. The outcome of the August jobs report will be an important driver for the extent to which the Federal Reserve will cut rates. The decision is both critical and difficult. Cut rates too much and markets could start raising inflation expectations. Do not cut them enough and the economy could weaken further as businesses reel from high rates on their debt. Whatever they do, the impact of lower rates will take time to show an effect. In the meantime, markets can continue to struggle.
Conclusion
A final unknown variable in this setup is the upcoming US elections. It is likely that weaker economic performance will hurt the chances of the incumbent administration. Crypto markets clearly favor a Trump presidency due to his recently discovered pro-crypto stance. Not even the best analysts can predict the full extent of the 2nd and 3rd order impacts of a weakening economy, upcoming rate cuts, and a US election that is on the knife’s edge. Markets hate uncertainty. Unfortunately, there seems to be plenty more of it to come before traders can finally start to look upwards once more.
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