Fed Meeting Looms: What the Latest Market Dip Means for Investors
Fed Meeting Looms: What the Latest Market Dip Means for Investors
Digital Asset Market: Bitcoin and other leading cryptocurrencies slipped, with BTC trading below 67K, as risk-off sentiment dominated the markets in Asia on Monday. Spot BTC ETFs listed in the U.S. saw outflows of over $64 million, the first since late May. Chinese stocks fell over 1%, leading losses in the Asian equity indices, while the dollar index and U.S. Treasury yields were mostly unchanged. Concerns over a divided Europe were revived by recent election results, adding more uncertainty to the market. Investors also awaited important events this week, such as the U.S. CPI release and Fed rate decision.
Macro Economics: There are rumors that French President Macron is considering resigning, causing a sharp sell-off in French government bonds and widening the spread with German bonds. Macron had called for a snap election to curb the rise of the far-right party National Rally. He stated in an interview that his position as president would not be affected by the results of upcoming legislative elections, despite an opposition party leader suggesting an alliance with far-right candidate Marine Le Pen. Macron's decision to dissolve parliament has caused uncertainty among investors, with the yield on French 10-year bonds rising and the spread over German bonds widening. Even if Macron manages to contain his losses in the elections, he will likely face challenges in pushing through his economic plans. The European Commission may also criticize his struggles to stabilize France's public finances, potentially boosting Le Pen's campaign. Macron's political future and the upcoming elections will be a dominant topic at the upcoming Group of Seven summit. The news has caused significant market volatility, with French stocks and banks taking a hit.
On the other side, Industries such as construction, automotive repair and plumbing are struggling to find skilled workers to fill vacant positions. The lack of emphasis on trade skills in many high schools is contributing to the problem. The stigma attached to choosing trade jobs over college is also a factor. The shortage of skilled workers is causing labor challenges for various businesses across the country. Government reports estimate that there will be a shortage of thousands of workers in these industries in the next few years. Awareness needs to be raised about the opportunities and high-paying salaries available in trade jobs in order to attract more young people to fill these positions.Equities: US stocks opened a bit lower on Tuesday, pulling back from recent record highs as investors awaited the outcome of a Federal Reserve meeting that could provide clarity on the future of interest rates. The S&P 500 and Nasdaq Composite both dropped a bit, while the Dow Jones Industrial Average fell over 350 points. The market uncertainty surrounding the economy and potential rate cuts has led many investors to revise their expectations, with some predicting just one rate reduction this year. The two-day Fed meeting is expected to end without any changes to borrowing costs, but markets will be looking for clues on when rate cuts may occur. The upcoming release of May consumer price data is also being closely watched. Apple shares rallied, while Eli Lilly saw a spike in its stock after a positive FDA panel review for its Alzheimer's treatment.
The Fed and US Treasury: The strong pace of job growth and rise in wages in May is expected to maintain the Federal Reserve's interest rates through this summer and possibly beyond. Non-farm payrolls increased by 272,000 for the month, surpassing Wall Street's expectations and signaling a still-vibrant labor market. This data indicates that the Fed does not have to rush to lower interest rates. However, inflation remains well above the target, suggesting a need for caution. Despite the unemployment rate rising to 4%, the labor market appears strong. The Fed is not expected to make any changes at their upcoming meeting next week, but may consider cutting rates at their September meeting. Citigroup also predicts a series of rate cuts in the near future due to a slowing economy. Overall, experts believe that the Fed's mandate of maintaining full employment and stable prices is in balance, allowing for potential rate cuts in the future.
Geopolitical: The United States has deployed air and naval assets to monitor Russian warships en route to Cuba. Open-source intelligence analysts have identified a Coast Guard vessel and several US and Canadian Navy ships following the Russian fleet, while US P-8 Poseidon aircraft are conducting surveillance from above. It is unclear which Russian ships are being tracked, but they are currently in international waters off the coast of Florida.
In other news, the US is considering a separate deal with Hamas to free five American citizens captured by the group. Hamas has accepted the UN Security Council's Gaza ceasefire resolution but wants the US to ensure Israel's compliance before it will act. Despite the resolution, talks between the warring parties remain at a stalemate, and people continue to suffer. The US is growing impatient and wants to see progress, but it remains unclear what the next steps will be.
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Uncertainty in the financial markets, coupled with significant outflows from ETFs, pulled BTC below $67K on Tuesday, edging closer to $66K at the time of this briefing. The lack of a clear message from the Federal Reserve is driving this uncertainty, further exacerbated by the possibility of an early French election and the future of President Macron. This has led investors to move assets into safer territories. We consider this pullback temporary and unfounded, presenting an opportunity for investors looking to add cryptocurrencies to their portfolios. For those with a long-term view, this could be a good time to 'buy the dip,' although it's important to remember that timing the bottom is impossible.
All eyes are on the upcoming Federal Reserve meeting in the broader financial markets. Although no rate cut is expected, the market is keen to gain insights into the Fed's plans for their first rate cut, anticipated around September 2024 with roughly a 50-50 probability. We believe the Fed will likely prefer to delay rate cuts as much as possible while keeping their options open. Therefore, we expect no substantial information to be delivered tomorrow.
Overall, the current market conditions, driven by political and economic uncertainties, suggest a cautious yet opportunistic approach for investors. The ongoing developments in the crypto and financial markets underscore the importance of staying informed and ready to act when opportunities arise.
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The 1Konto Team
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