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WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

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2024-07-02 17:38:44186browse

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

The U.S. CPI in June diverged from the non-agricultural data, resulting in the market being unable to reach a consensus on the number of interest rate cuts, and could only "see as we go." NVIDIA's market value once topped the world's list and became the pride of the AI ​​era. However, the U.S. stock market is seriously divided, the price-to-earnings ratio is high, and a bubble has emerged. The crypto market has fallen for no reason this month. The selling of old OGs and miners may be the direct cause of the decline, and it also provides new opportunities for subsequent investment.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

The latest FOMC meeting in the United States in June came to an end. The meeting decided to maintain the federal funds rate between 5.25% and 5.50%. This decision was in line with market expectations. However, the overall attitude at this FOMC meeting was dovish, a change from the previous hawkish style. In terms of the language of the meeting, Powell believed that the current inflation is "making moderate progress" away from the 2% target. Indeed, the latest CPI data in May showed that the U.S. CPI in May increased by 3.3% year-on-year, a slight decrease from the previous value and the expected value of 3.4%; after excluding food and energy costs, the core CPI in May increased by 3.4% year-on-year, lower than the expected 3.5% , also lower than the previous value of 3.6%, the lowest level in more than three years.

However, despite the good inflation data, the performance of non-agricultural data casts a shadow on the interest rate cut. U.S. non-farm payroll employment in May was 272,000 (expected 185,000, previous value 175,000), higher than Wall Street analysts' forecasts. This divergence between inflation and employment data has led to the current market being unable to form a consensus on the timing and frequency of interest rate cuts. The FedWatch Tool shows that the probability of a first rate cut in September is currently only 56.3%.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

The dot plot shows that 11 members believe that interest rates will remain above 5% this year, which is equivalent to only one interest rate cut at most; 8 members believe that it can be reduced to 4.75%-5%, which is equivalent to Interest rates can be cut twice. Therefore, there is no clear conclusion yet on the number and magnitude of interest rate cuts, and we can only "see as we go."

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

If you look at it from a trading perspective, it seems that the market has started betting on a Fed rate cut. U.S. Treasury yields have been trending downward in recent months.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

The price of gold is also trading sideways at a high level, which seems to indicate that the risk appetite of funds is gradually increasing and the attractiveness of safe-haven assets to funds is gradually decreasing.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

Right now, US inflation seems to be heading in the right direction. The latest Markit manufacturing PMI in the United States is 51.7 (51.0 expected, previous value 51.3); the Atlanta Federal Reserve Bank's GDPNow model shows that GDP growth in the second quarter of 2024 is expected to be 3.0%. Therefore, WealthBee believes that investors do not need to worry too much about the U.S. economy and can just wait for inflation to fall and the Federal Reserve to cut interest rates.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

On June 18, Nvidia (NVDA) stock price rose 3.51%, with its market value reaching US$3,335.3 billion, surpassing Microsoft and Apple, becoming the world's largest company by market value. At this time, less than two weeks have passed since Nvidia surpassed Apple in market value on June 5 and became a member of the $3 trillion market value club. There is no doubt that in the narrative of this disruptive AI revolution, Nvidia has eaten up all the dividends and become the favorite of the times voted by the market with real money.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

However, after Nvidia briefly reached the top of the world, Huang Renxun began to reduce his holdings and cash out, and the stock price also fell back. Currently, it ranks third in the world after Microsoft and Apple.

The Federal Reserve has been reluctant to cut interest rates, but US stocks have been able to hit record highs repeatedly. The strong momentum brought by the AI ​​narrative is leading US stocks to break the macro cycle and move out of the independent market. This month, the Nasdaq and S&P 500 continued to hit record highs, while the Dow was trading sideways at high levels.

Since the beginning of the year, the talk of "US stock bubble" has been getting louder and louder, but US stocks have been hitting new highs repeatedly. If WealthBee analyzes it from the price-to-earnings ratio indicator, although the price-to-earnings ratio of the S&P 500 has been rising in the past year and is close to the 80% percentile of the price-to-earnings ratio in the 21st century, it is still much lower than the price-to-earnings ratio when the Internet bubble burst around 2002. many. So it can be said that the bubble does exist, but it is not that serious.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

However, this month, the difference between the S&P 500 index return and the breadth indicator reached a 30-year extreme. That is to say, although the index is hitting new highs repeatedly, the number of rising stocks continues to decrease. This shows that all market funds are concentrated in large heavyweight stocks, and small stocks are almost "no one cares about". This phenomenon is not conducive to the overall liquidity of the U.S. stock market. Institutional grouping may cause the decline of the grouping stocks to cause the entire market to plummet. Therefore, the risks in U.S. stocks currently exist and are obvious. WealthBee believes that it may be necessary to wait until Nvidia's second quarter financial report for fiscal year 2025 appears to see whether Nvidia can continue to exceed market expectations, combined with changes in interest rate cut expectations, by which time the style of U.S. stocks may usher in some changes.

In addition to US stocks, the Asia-Pacific market performed well again this month, with the Mumbai SENSEX approaching 80,000 points and the Taiwan Weighted Index hitting a record high. Although the Japanese yen exchange rate fell below 160, the Nikkei 225 high sideways performance is still strong.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

US stocks hit new highs, but the crypto market fell for no reason. This month, although there are no obvious macro negatives, the crypto market continues to decline, with Bitcoin falling below $58,500 and Ethereum falling to around $3,240.

In fact, the macroeconomic outlook throughout June was pretty good, and the Fed’s statement has turned dovish. But financial market fluctuations are often unexplainable. HODL15Capital monitoring data shows that the U.S. spot Bitcoin ETF still had a net inflow of 9,281 BTC in June. The Bitcoin spot ETF showed a net inflow, but the market trend ran counter to the behavior of large institutions.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

At present, the direct cause of the market decline is the selling by old OGs and miners (taking miners and whales as an example, they have sold US$4.1 billion). As for why the selling was concentrated during this period, it is most likely that it was "gathered together for no reason."

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

From another perspective, the emergence of a large number of financial instruments in the Bitcoin market has also greatly increased market volatility. Since the emergence of Bitcoin contract trading in 2017, more and more complex financial derivatives have been created. If there are no contract transactions and everyone is free to trade spot in the market, then the entire market will be neutral except for the increase in supply caused by miners producing new Bitcoins. The emergence of contracts has led to naked short selling in the market, resulting in the emergence of a large number of "paper BTC", thereby increasing the supply of the market and exacerbating the volatility of Bitcoin prices. Financial instruments such as spots, contracts, and options are intertwined, making the fluctuations of the entire Bitcoin market increasingly chaotic. The simple and beautiful "classical era" of Bitcoin is gone forever.

Since there is no obvious risk, then the decline is likely to be a good time to add positions. The selling by the whales also gives other investors an opportunity to buy at a low price.

Moreover, the increasing diversification of financial instruments is the key path for the encryption market to gradually move into the public eye. Just this month, the encryption market received two important pieces of information. First of all, the arrival of the Ethereum spot ETF is faster than imagined, and it may be approved as early as early July. Bloomberg ETF analyst Eric Balchunas expects the Ethereum spot ETF to be approved as early as July 2.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

In addition, on June 27, VanEck head of digital asset research Matthew Sigel stated that he had applied to the SEC for the Solana ETF and said it might be launched in 2025.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

From Bitcoin to Ethereum, and then from Ethereum to Solana, crypto assets are being accepted by the traditional market at a faster than expected rate, and the incremental funds generated by then will probably be immeasurable.

WealthBee Macro Monthly Report: The number of interest rate cuts by the Federal Reserve has caused controversy in the market, and the crypto market welcomes new investment opportunities

Although U.S. June CPI data showed that inflation cooled more than expected, the strong performance of non-agricultural data has complicated market expectations for an interest rate cut by the Federal Reserve. In addition, the divergence between CPI and non-agricultural data and the interest rate cuts that have begun in Europe have further exacerbated the differentiation of global monetary policies. In the stock market, the sharp fluctuations in Nvidia's market value and the large and small caps of U.S. stocks reflect the market's divergence in the prospects of AI technology, and also expose the increase in market concentration.

The sharp drop in the price of Bitcoin in the cryptocurrency market this month to below $60,000, and its decoupling from the trend of US stocks, may be related to the selling behavior of miners and long-term holders. The increased volatility in the market may be partly due to the emergence of complex financial derivatives related to Bitcoin. Nonetheless, the launch of spot ETFs is seen as a stabilizer for the market, providing investors with a hedging tool. In particular, the Ethereum spot ETF is expected to be launched in early July, which will bring new vitality and stability to the market. Despite uncertainty in macroeconomics and traditional financial markets, cryptoasset markets have shown their independence and resilience and are expected to play an increasingly important role in diversified investment portfolios, providing investors with new growth opportunities.

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