Key facts:
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Hooper sees stocks rallying.
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Bitcoin sometimes shows high correlation with traditional financial indices.
The publication of some macroeconomic data from the United States brought relief to financial markets, which after the “Black Monday” of August 5 feared a possible recession.
As reported by CriptoNoticias, these tail whipping began earlier this month after the Bureau of Labor Statistics reported that unemployment on U.S. soil rose to 4.3% in July, its level highest in the past three years. The Federal Reserve (Fed) has not given any indication of a possible cut in the annual interest rate until September.
Fears of a slowdown in the economy of the main financial power generated a collapse in the Asian and European stock markets. Other issues also contributed to this negative sentiment, such as the end of the carry trade of the yen and decisions of the UK Central Bank. The combination of these events is remembered as the “Black Monday”.
Less than a month after this perfect storm, Fears of a recession in the US economy have weakened and some analysts are predicting a 180-degree turnaround. Among these opinions is that of Kristina Hooper, global market strategist at asset management firm Invesco. She holds that there is a “change of luck”:
“A theme I keep coming back to this summer is ‘reversal of fortunes.’ I think it accurately describes the past few weeks. The perceived risk by markets of a US recession has declined almost as quickly as it rose thanks to recent data.”
Kristina Hooper, director of Invesco.
In this regard, he points out that after the fall of the financial markets on August 5, New data fueled a strong recovery in risk assets like stocks.
Some of these indicators include a 1% increase in retail sales, a higher number than expected. Hooper also takes as an example what happened with Walmart, which reported an increase in the number of transactions and also in the average amount that customers spent, compared to the same quarter in 2023.
US jobless claims fell to 227,000 in the week of August 12-16, down from 234,000 in the period from August 5-9.
Consumer confidence rose in five months in the University of Michigan Survey of Consumers. “It seems clear that continued progress on disinflation is helping,” Hooper said.
These data suggest that The US economy is not entering a slowdownbut they also show that domestic demand remains strong and the labor market is showing some signs of recovery.
As the analyst points out, this rebound has had a positive impact on US stocks, as can be seen in the following chart. TradingView“Markets are clearly breathing a sigh of relief,” he concluded.
Standard & Poor’s 500 Index so far in 2024. Source:TradingView.
Rate cuts to avoid a bigger crisis
Hooper explains his baseline scenario and believes that the US economy will be able to avoid a recession. He also ventures to predict an acceleration by the end of 2024 or early 2025, driven by real wage growth and falling inflation.
However, to avoid a more serious economic crisis, Invesco management maintains:
“The Federal Reserve needs to act quickly enough. We already have an improvement in real wage growth and we are now waiting for the start of rate cuts. We need rate cuts to start soon, that will be key for our baseline scenario to come true.”
Kristina Hooper, director of Invesco.
As reported by CriptoNoticias, Fed Chairman Jerome Powell, speak at the Jackson Hole Economic Symposium, gave signs that interest rate cuts are getting closer. Currently, it is around 5.25% – 5.50%.
In his speech, the head of the organization said that “the time has come to adjust monetary policy.” “The timing and pace of rate cuts will depend on the data that is obtained, the evolution of the outlook and the balance of risks,” he concluded.
Kristina Hooper, global market strategist at asset management firm Invesco. Source: X’s account Kristina Hooper.
Bitcoin is driven by macroeconomic factors
In this context, risk assets such as the actions, bitcoin (BTC) and cryptocurrencies reacted upwards after Powell’s speech.
The performance of these assets supports Hooper, who predicts significant growth and rebound for the remainder of the year.
Another issue to highlight is that, so far in August, the digital currency acted in correlation with major stocks. Which suggests that the positive sentiment towards these instruments also includes BTC and cryptocurrencies.
In low-interest-rate environments, investors choose to invest in risky assets such as stocks or BTC with the expectation of higher returns.
In the specific case of the digital asset, this dynamic translates into an increase in demand and, therefore,in an increase in its price.
However, if the rate is high, they will seek refuge in instruments considered more conservative, such as Treasury bonds.
That is to say, if this scenario continues, the demand for bitcoin tends to decrease, which may put downward pressure on its price.
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