MARKETS week ahead: July 30 – August 5Last week in the news
Both Fed and ECB increased their reference interest rates by 25bps, which was fully in line with market expectations. Markets ended the week digesting the central banker`s view on the current state of both economies, in expectations that pivoting might come somewhere during the course of the next year. All markets slowed down during the week, still S&P 500 ended the week 1% higher on the inflation data. Bitcoin continues to struggle to hold FWB:29K , while Ether finished the week below $1.9K.
There have not been any surprises when Central bankers are in question. Fed increased its reference interest rates by 25 bps as it was expected, with some probability for additional rate hike till the end of this year. In the meantime, figures are showing that the US inflation continues to ease further through the course of this year. Still, Fed Chair Powell continues to stress that further rate increases would be data-driven and that FOMC members will rely their future decisions exclusively on economic data. Some economists are again raising a question of how further increase of interest rates will affect small banks in the US, implying that some of them might enter into trouble, considering incurred fair value losses on Treasury bonds portfolios. At the same time, Central bankers in the EU also raised interest rates by 25 bps, with an old note that inflation will stay elevated for a longer period of time. However, the ECB President Lagarde did not exclude the possibility to pause further rate hikes in September. The recession fears are still very high on the EU market, especially with its major economy, Germany, significantly slowing down since the beginning of this year.
A huge surprise during the previous week was an unexpected move for the monetary policy of the Bank of Japan. As they called it, “a greater flexibility”, means that the BoJ would leave its yield curve to fluctuate within a range of plus/minus 1% instead of current 50 bps. The BoJ is well known for its 0% yields policy on 10Y government bonds. It is keeping their rates around 0% in order to support economic growth. However, this move might have broad implications on developed financial markets, considering that many large institutions were taking advantage of interest rate differentials in Japan and the US or EU. They were taking JPY funds at 0% or near 0% in order to invest them in the western markets at higher yields. A new BoJ policy would mean more expensive funds for investors and lower level of investments in other markets. Both EU and US markets reacted to this news with lower closes.
Worldcoin (WLD) became live during the previous week. It is a project of Sam Altman, a CEO of Open AI, which drew many controversies before its official launch. The coin is based on privacy-preserved identity, or World ID, which allows for humans to have an identity in the digital world. It is also noted that its aim is to “distribute a universal basic income to people worldwide”. However, for authorities in the EU it rang a bell for its data protection rules, as they are currently investigating legality of such a data collection. At the same time, the Worldcoin Foundation commented to CoinDesk that they will cooperate with the government on their “privacy and data protection practices”.
Crypto market cap
The Fed increased its interest rates by 25 bps as it has been expected. Still, posted inflation figures for the US are showing that inflation continues to be on a down-track, which supports investors optimism that the monetary tightening might soon come to an end. Still, it should be taken into consideration that Fed Chair Powell promised two rate hikes till the end of this year, which leave us with one additional 25 bps hike in the coming months. A potential Fed`s pivoting will support investors' appetite for riskier assets. Until then, investors remain oriented toward the equity markets and US Treasury bonds, especially the short term ones. The crypto market is for the last two weeks left aside from investors' attention. Second week in a row the crypto market capitalisation is finishing the week with a modest drop in value. During the previous week, total market cap dropped by 2%, losing $19B in the total value. Major coins on the market were the ones which were dragging the market to the downside. This week, the majority of altcoins also followed the same path. Daily trading volumes were further decreased to the level of FWB:37B on a daily basis, from FWB:49B traded during the week before. Total crypto market capitalization increase since the beginning of this year stands at 52%, where it has added a total $390B to the market cap.
Several altcoins finished the previous week in green. Major coins on the market were the ones that were leading the total market capitalization to the downside in a nominal sense, participating with a total 75% in $19B value decrease. Bitcoin lost even $11.8B or 2% of its market value during the week. Ether managed to hold relatively flat, with a modest drop in value of $2.2B or less than 1%. XRP was also on a losing side, with a drop in market cap of almost $3B or 7.4% on a weekly basis. Other altcoins were losing less than 10%, among which NEO lost almost 6%, EOS was down by 5.3% and Polygon dropped by 6.3% w/w. There were few coins with relatively solid performance, like Maker, who managed to gain 13% in value. There was also a DOGE with an increase in market cap of 8.6%. As for coins in circulation, the market calmed down compared to the week before, and there has not been much change. Polkadot managed to increase its circulating coins by 2.9% w/w, while XRP continues to increase its coins in circulation, adding 0.3% during the previous week. Tether remained flat during the week.
Crypto futures market
Crypto futures market continued its correction which started a week before. During the previous week, there has been a further drop in BTC short term futures by more than 2%, while ETH futures were traded down by some 1.5% on average.
BTC longer term futures also had a correction of more than 2%. Futures maturing in December this year were last traded down by 1.98%, and finished the week at price $30.500. At the same time, futures maturing in December 2024 finished the week by 2.16% lower from the week before, at price $32.880, and down from $33.605 traded as of the end of the previous week.
ETH long term futures dropped by 1.60% w/w. December this year was last traded at the price of $1.911, dropping below $2K psychological level. Futures maturing in December 2024 were traded 1.55% lower from the week before, while still managing to hold above $2K level. Last traded price was $2.032 on CME.
