Bitcoin and Big-Tech Take a Hit, Bonds and Black Gold Benefit as Rate-Cut Expectations Rise
The day was relatively calm in terms of macroeconomic data, with only soft-survey data making an appearance. However, US Empire Fed Manufacturing made a significant leap, exceeding expectations by six standard deviations in September, with a reading of +11.5 against an expected -4.0 and a previous -4.7.
Rate-Cut Expectations and Market Reactions
The weekend piece by Greg Ip from the Wall Street Journal, suggesting a 50bps cut this week, caused some turbulence in the markets. As a result, the market is now pricing in about a 70% chance of a 50bps cut this week. Interestingly, rate-cut expectations for 2025 are trending lower, while 2024 is seeing a dovish increase.
The Fed's Reverse Repo Facility
Before delving into the day's market movements, it's worth noting that usage of The Fed's Reverse Repo facility dropped to $239BN today, the lowest since May 2021. This drop indicates that liquidity continues to drain from the system.
Goldman Sachs Trading Desk Observations
Goldman Sachs' trading desk observed a relatively quiet start to the "rate cut week" following the "inflation week," which saw the best weekly performance for SPX all year. This performance reversed the worst weekly performance of the year from "jobs week" just two weeks ago.
Stock Market Performance
On the day, Nasdaq was the only stock index to decline, falling over 1% at its worst, while The Dow and Small Caps outperformed. After Europe closed, US equities drifted higher. After five consecutive days of gains, the Mag7 stocks fell today, losing around $170BN in market cap, with AAPL and NVDA leading the decline, while META rallied.
Treasury Yields and Dollar Performance
Treasury yields were lower on the day, with the long-end outperforming. The 10Y yield closed at its lowest since June 2023. The dollar also drifted slightly lower, marking its fourth consecutive day of decline.
Gold and Silver Performance
Gold made small gains today, consolidating at record highs. Silver has been outperforming gold for the last few days and is back at two-month highs relative to gold.
Cryptocurrency and Oil Prices
The weakness in big-tech extended to cryptocurrency, with bitcoin dropping to a $57,000 handle, erasing all of Friday's surge. Oil prices, on the other hand, continued their rebound, with WTI rising above $70 once again.
Stocks and Bonds Decoupling
Stocks and bonds remain decoupled, with the latter leaning towards 'recession' and the former focused on 'rate cuts to save the world'. This reflexive dichotomy may well come apart after Powell makes his decision this week - 25bps or 50bps?
Bottom Line
The financial markets are in a state of flux, with rate-cut expectations, big-tech performance, and cryptocurrency values all influencing the overall landscape. As we await Powell's decision this week, it's clear that the outcome could have significant implications for the markets. What are your thoughts on these developments? Feel free to share this article with your friends and engage in a discussion. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
