Bitcoin and Asian Markets Retreat as Traders Rethink March Fed Rate Cut
A broad risk-off mood swept across Asian stock markets early this week while Bitcoin declined moderately, weighed down by dampened expectations for an aggressive Federal Reserve interest rate cut in March following last Friday’s upbeat U.S. jobs report.
The headline Bitcoin price shed 0.8% to trade around $43,600 as of Monday morning, based on CoinDesk market data. Meanwhile, Hong Kong’s Hang Seng index plunged over 2% amidst added regulatory scrutiny on the video game sector.
|Before Jobs Report
|After Jobs Report
|Down 0.8% to ~$43,600
|Hang Seng Index
|Down over 2%
|Dec. Nonfarm Payrolls
|Forecast of 170,000 jobs added
|Actual of 216,000 jobs added
|Fed Funds Rate
|Still at historically low 3.5%
|Steady at 3.7%
|At 4.1% year-over-year
|Chance of March Rate Cut
|Implied 75% probability
|Now only 60% probability
|Expected 2023 Rate Cuts
|Now 5 expected
|10-Year Treasury Yield
|Climbed back over 4%
The selling momentum comes on the heels of the latest nonfarm payrolls (NFP) data indicating the U.S. economy remains resilient, with 216,000 jobs added in December versus forecasts of 170,000. Markets are now second-guessing the likelihood of the Fed making substantial rate cuts near-term to spur growth.
NFP Report Challenges Dovish Fed Narrative
While still historically low at 3.5%, the current Fed funds rate remains restrictive enough to cool inflation under 6% as wage growth moderates and supply bottlenecks improve. With unemployment equally low, the latest jobs stats paint a picture of steady expansion rather than urgent recession risk.
This staunches mounting market perceptions of the Fed needing to prioritize economic revival over inflation vigilance. Prior to Friday, futures prices implied a 75% chance of a 25 basis point March cut, with additional easing anticipated through year’s end.
But revitalized labor data makes the case for staying the course. Swap markets now expect around five quarter-point cuts annually rather than the six or seven envisioned earlier. And the benchmark 10-year Treasury yield has climbed back over 4%, consistent with diminished easing bets.
As Amberdata’s Greg Magadini observed, “The most intriguing aspect was the rise in wage gains, which stood at +4.1% year-over-year. This figure significantly exceeds current inflation rates…which will likely compel the Fed to maintain flexibility in its policy decisions going forward.”
Weaker Outlook for Risk Assets
The shifting monetary policy landscape presents headwinds for Asian markets like Hong Kong stocks reliant on ample global liquidity conditions. With the Fed potentially delaying accommodation, pricier capital threatens vulnerable emerging economy assets.
Bitcoin equally faces macro uncertainty if Treasury yields stabilize at higher levels, curbing Safe haven flows. Already battling endemic industry issues like exchange solvency doubts, tighter Fed messaging could prolong crypto’s volatile consolidation.
Of course, one labor report alone may not completely reverse the 2023 easing narrative should coming data further indicate recessionary threats. For now though, belief in an immediately supportive Fed appears premature.
And with corporate earnings season highlighting whether market pessimism is overdone, embracing upside economic surprises keeps the Fed’s options open. As Magadini summarized, last Friday’s resilience will compel policymakers to maintain flexibility if more evidence of underlying durability emerges over chasing phantom rate cuts.
Credit: By Google News