Good bad news for cryptocurrencies

Already back? Risky assets were pumped up this morning after weaker-than-expected employment, with Bitcoin up nearly 5%, a rise directly attributable to the increased likelihood of more drastic and rapid interest rate cuts. Why is bad news good for stock markets?

The US Bureau of Labor Statistics released employment data for the month of April at 8:30 EST this morning (the time this morning’s BTC rally was triggered), showing that payrolls non-agricultural goods increased by 175,000 while the unemployment rate rose to 3.9%.

Nonfarm payrolls fell short of consensus expectations by 243,000 jobs, the worst month in the series since October 2023, and the unemployment rate is now back at 2024 highs, despite falling slightly after the massive increase in March occupation.

On Wednesday, Federal Reserve Chair Jerome Powell specifically said that a weakened labor market could spur the interest rate cuts eagerly awaited by market participants; today’s weakening jobs data has created massive increases in the odds of a cut.

US Treasury yields, which have fallen throughout May, continued their downward trajectory as the imminence of rate cuts received further confirmation while market participants are now pricing in a base case of two rate cuts. interests in 2024.

Politicians, prolific financial thinkers and the media establishment have flattered you into believing that a declining economy is somehow a bullish catalyst because it will incite rate cuts, however, this is far from the truth. History shows time and time again that rate cuts typically coincide with the deepest points of the recession, proving that interest rate manipulation is just one of many variables that impact the economy.

Fundamentally, bond yields reflect future growth and inflation expectations. Their downward movement suggests that there will be no reinflation and that growth is headed lower.

Interest rates below “neutral rate” at which we achieve stable employment and inflation can serve an economic benefit, but this neutral rate falls sharply in recessions, meaning rate cuts alone may be inadequate to offset economic decline.

The Fed claims to be entirely “data dependent,” but this leaves it focused on lagging data metrics and staring in the rearview mirror; by the time they hit the pedestrian in front of them, it will be too late.

While near-zero interest rates are certainly advantageous for capitalized borrowers, they are meaningless when credit availability is scarce and the quality of borrowers is declining along with the value of their assets.

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