Alright, let’s get this recap started…
A quick look back to Wednesday shows Bitcoin’s price hovered around $117,000, Ethereum around $3,700, and various alternative cryptocurrencies experienced gains.
Yes, the newsletter took a two-day break—purely coincidental. It wasn’t related to the market dip.
So… what exactly triggered the market shift?
Essentially, investors reduced their exposure to risk assets. This trend was visible not just in cryptocurrency prices, but also across various Exchange Traded Funds (ETFs):
👉 Bitcoin ETFs experienced substantial outflows, totaling $927.1 million, over the preceding week.
👉 Ethereum ETFs recorded losses of $152.3 million on Friday alone.
But the underlying cause remains the key question.
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Don’t look at me that way – honestly, I didn’t influence anything.
Macroeconomic factors are the primary driver. Let’s break it down: 👇
1/ The Federal Reserve (Fed) Meeting
The Federal Reserve maintained its current interest rate levels.
This decision was largely expected – the market anticipated a near-certain (98%) outcome. Therefore, this event was not the main factor.
The real impact occurred afterward, during the post-meeting press conference with Federal Reserve Chairman Jerome Powell. Investors hoped for a more dovish tone, perhaps hinting at potential rate reductions starting as early as September.
However, that didn’t happen.
Powell stated the Fed was prepared to lower rates if necessary, but refrained from providing any explicit timelines. His statements were less encouraging than anticipated.
The markets reacted with disappointment – and the data showed it.
Earlier in the previous week, analysts estimated a 65% probability of a Fed rate cut in September. Following Powell’s press conference, that expectation declined to 43%.
Nevertheless, circumstances could change considerably before the upcoming Fed meeting scheduled for September 17th.
Specifically, the Fed will closely monitor these indicators:
👉 Inflation rates.
👉 The state of the job market.
If inflation eases or the labor market weakens, a rate cut becomes more probable.
This leads to…
2/ June’s Personal Consumption Expenditures (PCE) Data
The day following Powell’s address, the latest PCE data was released.
PCE tracks consumer spending patterns on goods and services and is the Federal Reserve’s preferred inflation gauge.
The underlying reasoning is as follows: increased consumer spending → increased demand → potential supply shortages → rising prices = inflation.
And… the most recent data was higher than forecast:
👉 June’s PCE inflation rate: 2.6% (compared to an anticipated 2.5%).
👉 Core PCE inflation rate: 2.8% (versus an expected 2.7%).
This marks the second consecutive month of rising inflation.
Therefore, not favorable if anticipating rate reductions.
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However, another development occurred.
3/ The July Jobs Report
On Friday, the July jobs report indicated the US economy added a mere 73,000 new jobs.
This figure is considerably lower than the projected 106,000.
However, the widespread surprise wasn’t solely due to this figure; rather, it was attributed to significant revisions to both May and June’s data. These were substantial adjustments:
👉 May: revised downwards from approximately 144,000 jobs to just 19,000.
👉 June: decreased from around 147,000 to only 14,000.
This represents a total of 258,000 jobs removed from the record. Such a significant downward correction suggests a slowdown in the labor market.
This swiftly impacted market sentiment, with analysts now projecting an 83.7% probability of a rate cut in September.
As previously mentioned, the Federal Reserve requires one of two conditions to justify a rate reduction:
❌ Lower inflation rates (which has not yet materialized).
✅ A weaker labor market (which is now evident).
Should hiring continue to decelerate, the Fed may be compelled to lower interest rates – even if inflation remains high.
Therefore, the next jobs report will be crucial.
We will have to monitor closely to see how it unfolds.