The financial market is preparing for a decisive Friday with the publication of employment data, or unemployment (more precisely), in the United States. After today’s disappointing ADP report.
Are you ready for high volatility in the market?
The ADP private employment report released today showed disappointing results, with only 99,000 jobs created in August compared to the 144,000 expected.
This figure, well below expectations, suggests a cooling of the US labor market and could anticipate a higher unemployment rate than estimated by analysts.
The market consensus expects the unemployment rate to fall to 4.2% from 4.3% previously, with the data due tomorrow. However, after today’s ADP data, the chances of a negative surprise are increasing.
A lower than expected unemployment figure would be interpreted as positive for the dollar, stock markets, and cryptocurrencies (the US economy in general)… while a higher figure could have the opposite effect (initially also for the dollar, although later it could be good for the US currency).
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Implications for Bitcoin and cryptocurrencies
The crypto sector is sensitive to US macroeconomic data. A good unemployment report could benefit Bitcoin and other cryptocurrencies for several reasons:
We bet everything on a coin (or its answer according to tomorrow’s data): A weaker dollar tends to boost the price of Bitcoin, as it is mainly quoted in dollars. For this to happen, tomorrow’s unemployment data must be bad or worse than expected, and we explain why, in more detail, a little later in this article.
Although it should be noted that if it were better than expected, it would benefit the dollar (as we have said before) along with cryptocurrencies and stock markets: and, in turn, the dollar would be strengthened, potentially slowing the logical rise of everything that trades against the American currency… hence we should prepare for high volatility: it would not be strange to see a Bitcoin trading excessively nervous for hours. In other words, it will not be very beneficial (whatever the result) for Bitcoin. But let’s continue…
Impact on stock markets
Stock markets will also react to unemployment rates:
- Better than expected data: It could boost stocks by signaling a robust economy.
- Worse than expected data: Initially negative, but could be interpreted as favourable for a looser monetary policy.
Outlook for the dollar and other assets
The behavior of the dollar will be key:
Good unemployment data: A low unemployment rate would strengthen the dollar against other currencies.
Bad fact: It would put downward pressure on the dollar (initially), potentially benefiting other assets (initially after the data is published)… but if the data is very bad, finance in particular could leave most assets and take refuge in it (the dollar), thus strengthening it (hours later) and being detrimental to the stock and Cryptocurrency markets.
Yes, a double-edged sword: if it is not immediate, whatever the result, it will be bad for cryptocurrencies… only it will depend on the amount of bad or good data to see its performance sooner or later… above all, if it is worse than expected it will take a little longer to see the negativity in the price of Bitcoin and other cryptocurrencies as well as in the Stock Markets.
And other affected assets, for example, would be:
- Gold: Traditionally, it benefits from a weak dollar and economic uncertainty.
- Treasury Bonds: Their yields could fall on expectations of a less aggressive Fed, and they could benefit from bad data (because bonds are also considered safe havens).
In short
The unemployment rate report comes at a time of growing concern about the health of the U.S. economy. Persistent inflation, geopolitical tensions and recession fears are keeping investors on alert.
The market is at a turning point. Today’s disappointing ADP report has raised the importance of tomorrow’s official report (Unemployment Rate).
Investors should prepare for volatility across all markets. The initial reaction could be followed by more sustained moves as the market digests the long-term implications of the data… Let’s remember that if the data is bad it will end up benefiting the dollar: because it is a safe haven, and this would worsen the price of Bitcoin, this being the worst option for cryptocurrencies and the most important part of tomorrow’s results to take into account..
In this uncertain environment, diversification and a well-defined investment strategy are more crucial than ever.
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