The US-China Tariff Conflict vs. the Crypto Slump
The ongoing US-China tariff conflict has been a significant source of market anxiety throughout October, culminating in a much-anticipated resolution. Despite this positive development, Bitcoin’s response was disappointing as it posted a 1.72% weekly decline. This lack of upward momentum in the cryptocurrency market suggests a profound weakening of investor confidence.
Market Response to Geopolitical Events
In the critical period between October 29 and 30, crypto investors were especially attentive to the Federal Reserve meeting and the high-stakes summit between US President Donald Trump and Chinese President Xi Jinping. During this summit, China made concessions on three significant US demands: a one-year delay on rare earth export restrictions, the resumption of US soybean imports, and a reduction in the overall tariff rate from 57% to 47%. Additionally, both leaders agreed to reciprocal visits next year, resulting in considerable clarity on trade relations.
These developments had an immediate and noticeable impact on traditional safe-haven assets. Gold, which had surged during the escalation of the tariff conflict, retreated to approximately $3,990 per ounce by the weekend. On the other hand, the Nasdaq 100 Index rose around 2.7% from its lows, buoyed by reduced geopolitical risk and strong corporate earnings.
Bitcoin’s Struggles
As for Bitcoin, it traded near $110,000 as of Sunday evening UTC, reflecting a 9.4% drop since October 10. The struggles of Bitcoin can be attributed to a loss of momentum following an earlier crash that wiped out about $19 billion in leveraged positions within the derivatives market. This crash effectively siphoned off the fuel that had propelled recent rallies.
On-chain analysts have pointed out that this diminishing momentum, coupled with the fallout from the October 10 crash, has left Bitcoin in a precarious position amidst seemingly favorable news.
The Fed’s Rate Announcement: Good News, Bad News
Further complicating the landscape was the Federal Reserve’s rate announcement on October 29. The Fed’s Federal Open Market Committee (FOMC) lowered the benchmark interest rate by 0.25 percentage points and announced the end of Quantitative Tightening (QT) starting December 1. While this was fundamentally positive for risk assets, Chairman Jerome Powell introduced a layer of uncertainty that rattled investors. He suggested that the Fed might refrain from implementing a rate cut at the upcoming December meeting for the first time, which immediately countered the optimism generated by the rate cut itself.
Prior to the FOMC announcement, markets priced in a 91.5% probability of a December rate cut, but Powell’s comments slashed that expectation to a mere 55%. This shift triggered an immediate 2% drop in Bitcoin’s price. Although the FedWatch probability has since recovered to 70.4%, uncertainty remains a persistent cloud over the market.
Support for Powell and Implications for the Market
In the days following the rate announcement, multiple Fed officials voiced support for Powell’s stance. Atlanta Fed President Raphael Bostic noted that Powell was accurately representing the diverse opinions within the Fed, praising him for signifying the possibility of a rate hold in December.
While the US-China summit alleviated some geopolitical worries, the Fed’s newfound ambiguity brought a fresh set of questions regarding monetary easing. As a result, macroeconomic indicators, particularly inflation and employment data, are set to take center stage this coming week.
Upcoming Economic Indicators and Market Effects
Investors should brace for a heavy schedule of employment-related data in the week ahead. Key reports include the JOLTs Job Openings and Labor Turnover Survey on Tuesday, ADP Nonfarm Employment on Wednesday, Unemployment Claims on Thursday, and the Michigan Inflation Expectations Index on Friday. Any stronger-than-expected jobs data could bolster the likelihood of a December rate hold, further impacting market sentiment.
Additionally, public statements are expected from various Fed officials throughout the week, potentially influencing market movements. Prominent figures like Governor Lisa D. Cook (Monday), Vice Chair Michelle W. Bowman (Tuesday), and Governors Michael S. Barr and Christopher J. Waller (Thursday) will take the stage, leaving room for speculation and further market shifts.
In summary, while the geopolitical landscape has shown signs of resolution, the crypto market remains tethered to the uncertainties seeded by monetary policy. Investors will be keenly watching upcoming data and Fed commentary to navigate this complex terrain.
