Crypto's Wild Labor Day Weekend and OPEC's Shocking Move: How It's Shaking Up the Fed's Big Decision!
Crypto's Wild Labor Day Weekend and OPEC's Shocking Move: How It's Shaking Up the Fed's Big Decision!
Digital Asset Market: Deribit reported an increase in trading volume in August despite a 12.1% decline in global activity. Deribit's total volume rose to $42 billion, a 17% increase compared to July. This was mainly due to strong performance of the options segment, with Ethereum options recording the highest volume since March. Bitcoin activity was driven by its use as a hedge against the banking system as well as market anticipation and price volatility surrounding the upcoming ETF decision. In total, 5.6 million Ether option contracts and 0.7 million Bitcoin option contracts were traded.
Macro Economics: Oil prices jumped following an unexpected joint announcement from Saudi Arabia and Russia that they would extend supply cuts until December 2023 to maintain stability in the oil market. Saudi Arabia will reduce its production by 1 million bpd while Russia will reduce its export by 300,000 bpd. Brent Nov’23 rose from USD 88.50 to above $90 for the first time in 2023. The extension of the cuts has resulted in a tightening in supplies, with the premium of the front month Brent contract to the six-month contract reaching its highest since November 2022. This news was unexpected but will likely put upward pressure on the price of oil, as President Biden will face the challenge of refilling the SPR with oil prices now expected to reach and possibly surpass $100.
Equities: The data last week reinforced the narrative of a slowing economy, leading to speculation over whether September will follow tradition and become the weakest month for stocks. The upcoming Fed meeting will be looked to for clues about monetary policy going forward and whether a "soft landing" is achievable. Goldman Sachs has lowered their odds of a recession in the next 12 months to 15% due to favorable inflation data, softening labor market and continued growth of incomes. There is also concern about Congress potentially causing a government shutdown if they fail to reach a budget agreement by September 30th, and further tension over China's economic struggles.
The Fed and the Banks: Fed Governor Christopher Waller believes the Fed should proceed cautiously in raising interest rates after recent strong economic data and job figures. He noted that inflation is an important metric to watch and that they have to be sure that any decrease in prices is not just an outlier. Recent market expectations are for the Fed to skip a rate hike at its September meeting, although there is some uncertainty over whether one could happen. Waller also said that one more rate hike may not have an extreme effect on the job market.
Geopolitical: The global markets are lower as investors take a more cautious stance due to a series of disappointing data, including a Chinese Caixin Services PMI that came in lower than expected. European bourses are trading in the red, while US futures have followed suit. Additionally, commodities, gold and Bitcoin have all dropped as the US dollar gained against G10 peers. In Europe, the composite purchasing managers’ index came in lower than expected, indicating a recession. The ECB faces a dilemma over interest rates due to recession fears and above-target inflation. Across the pond in the US, Goldman Sachs has reduced the recession probability to 15%, down 5% from its previous estimate. In Asia, stocks dropped after a brief burst of China-linked optimism turned sour, with Chinese equities dragging the MSCI Asia Pacific Index lower after a bullish session the day prior. Meanwhile, North Korean leader Kim Jong Un plans to travel to Russia this month to discuss ramping up Pyongyang’s weapons supply to Moscow, while Ukraine’s president replaced his Minister of Defense following Russia’s invasion. The world’s most powerful financial watchdog warned of further economic shocks, as high interest rates threaten key sectors such as real estate.
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The cryptocurrency market experienced a dampening of spirits over the Labor Day weekend, following a brief surge of optimism due to the SEC's decision to allow the launch of the first Bitcoin ETF in the United States. This initial enthusiasm was short-lived, as we noted significant liquidations and profit-taking activities occurring on both Friday and today. With Bitcoin currently trading below the $26,000 mark, we anticipate a range-bound trading pattern for the cryptocurrency throughout the week.
In the broader economic context, a key development has been the decision by OPEC, specifically Russia and Saudi Arabia, to extend supply cuts in the oil market. This move complicates matters for the Federal Reserve, which had likely been hoping for more favorable inflationary data to justify maintaining current interest rates in their upcoming September meeting.
Given these developments in both the crypto and traditional financial markets, the landscape appears to be one of caution and uncertainty. The Federal Reserve faces a challenging decision, as the extended oil supply cuts add another layer of complexity to the already intricate economic picture. Meanwhile, in the crypto market, the volatility over the weekend serves as a reminder that short-term optimism can quickly give way to profit-taking, underscoring the need for investors to remain vigilant.
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The 1Konto Team
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