Tue. Feb 6th, 2024

Bitcoin, Asian Stocks Drop on Diminished March Fed Rate Cut Expectations

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Bitcoin faced moderate losses in early Monday trading, accompanied by a more significant downturn in Asian stocks. The optimistic U.S. nonfarm payrolls (NFP) data released on Friday contributed to diminishing expectations of an early rate cut by the Federal Reserve.

Bitcoin, Asian Stocks Drop on Diminished March Fed Rate Cut Expectations

As of 4:32 UTC, the leading cryptocurrency, Bitcoin (BTC), was exchanging hands at $43,600, indicating a 0.8% decline for the day, according to CoinDesk data. Concurrently, several Asian equity indices experienced negative trends, with Hong Kong’s Hang Seng leading the way with a 2% drop, driven by regulatory pressures on the gaming industry.

The NFP data from Friday revealed that the U.S. economy added 216,000 jobs in December, surpassing the anticipated 170,000 and exceeding November’s revised figure of 173,000. The unemployment rate remained stable at 3.7%, while average hourly earnings witnessed a 4.1% year-on-year increase, surpassing the consensus estimate of 3.9%.

Following the release of the payrolls data, doubts emerged regarding the Fed’s likelihood of implementing a rate cut as early as March. The CME Fed Watch tool now indicates a 60% probability of a rate cut in March, a decrease from the fully priced-in expectation late in December. The odds had surpassed 75% prior to the payrolls report.

Traders in the swap market are currently anticipating approximately five 25 basis point rate cuts throughout the year, a slight adjustment from the six or seven similar-sized rate cuts priced in before the payrolls data, according to FT.

The 10-year Treasury yield, often considered a risk-free rate, has risen by 15 basis points to 4.05% since Friday. This increase signals a reevaluation of dovish Fed expectations or the potential delay of the rate cut by the central bank. Notably, the benchmark yield had fallen by nearly 80 basis points to 3.86% in the final quarter of 2023, providing support to risk assets, including bitcoin. This was driven by expectations of aggressive Fed rate cuts and lower-than-expected bond issuance by the U.S. Treasury.

Greg Magadini, Director of Derivatives at Amberdata, highlighted the notable rise in wage gains, reaching +4.1% year-over-year (Y/Y). This figure surpasses current inflation rates, and historically, wage-price spirals have been persistent elements of inflation psychology. Magadini suggests that this may compel the Fed to maintain flexibility in its policy decisions moving forward, as outlined in the weekly newsletter.

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