(Kitco News) – Financial markets largely traded in a holding pattern on Thursday after the latest jobless claims data in the U.S. came in hot at 229,000 versus 220,000 expected by economists.
While some pointed to the reading as yet another sign that the Fed could reduce interest rates as soon as September, most are waiting for tomorrow’s non-farm payrolls (NFP) report, which is considered a crucial indicator for gauging the health of the U.S. economy.
“The upcoming non-farm payrolls release is highly anticipated, with market participants expecting a significant indicator of the U.S. economic health,” said analysts at Bitfinex in a note shared with Kitco Crypto. “Given that the U.S. ADP report showed private sector employment increased by 152,000 in May, which is below the forecasted 175,000, it suggests a cooling labor market.”
Bitfinex suggested that an NFP report that aligns with or falls below expectations “may reinforce the notion of an economic slowdown, potentially leading to increased market volatility. Investors might anticipate further monetary easing from the Federal Reserve, which could influence both equity and crypto markets.”
Also influencing the markets on Thursday was an interest rate cut by the European Central Bank (ECB).
“The ECB has implemented its first rate cut in five years, lowering the rate to 3.75%. This move aims to stimulate economic growth amid signs of a slowdown,” Bitfinex said. “The rate cut could weaken the euro, potentially leading to higher demand for alternative assets like Bitcoin. The increased liquidity from this monetary easing could also support risk assets, including cryptocurrencies.”
With the ECB and Bank of Canada both lowering rates in recent days, most analysts have said that the Federal Reserve is likely to follow suit in short order, but only after they stick to their guns and hold rates steady in June and July.
The CME FedWatch tool shows that Wall Street now gives a 70% chance of a rate cut in September, up from 50% a week ago.
At the closing bell, stocks finished mixed, with the Dow gaining 0.20%, the S&P flat, and the Nasdaq down 0.09%.
Data provided by TradingView shows that Bitcoin (BTC) traded in a range between $70,095 and $71,651 on Thursday, less than 5% below its all-time high.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin is bouncing back from an afternoon sell-off and trades at $70,662, a decrease of 0.80% on the 24-hour chart.
Looking ahead to tomorrow's NFP report, Bitfinex analysts said, “Bitcoin could benefit from expectations of continued monetary easing.”
“Lower interest rates and increased liquidity often drive investors towards alternative assets like Bitcoin,” they added. “A positive reaction from equities could spill over into the crypto market, potentially helping Bitcoin secure a weekly close above $70,000.”
“Conversely, if the NFP exceeds expectations significantly, it could signal a stronger economy, possibly leading to fears of tightening monetary policy,” the analysts said. “This might put downward pressure on Bitcoin as investors rebalance towards traditional assets.”
Regardless of how it turns out, the analysts said, “Friday's NFP release will be pivotal in shaping market sentiment.”
“A weaker-than-expected report might boost Bitcoin due to anticipated monetary easing, helping it aim for a weekly close above $70,000,” they said. “On the other hand, a stronger report could exert downward pressure as investors might foresee tighter monetary policies.”
“The ADP's lower-than-expected employment figures already suggest a trend towards economic cooling, which can be both a catalyst and a risk for Bitcoin's near-term trajectory,” they concluded. “The ECB's rate cut further adds to the macroeconomic dynamics, potentially supporting Bitcoin by increasing liquidity and reducing the attractiveness of traditional currencies."
Aurelie Barthere, Principal Research Analyst at Nansen, also sees the NFP report as an important data point that will help provide insight into the path forward on interest rates.
"The ADP number joins a string of real activity data such as retail sales, Q1 GDP, capex, etc..., that paints a picture of moderating real growth and cooling labor market in the U.S,” she said in a note shared with Kitco Crypto. “As long as growth slows but does not contract, it is likely to push U.S. rates lower and become a tailwind for crypto.”
“So far, we cannot say that the slowdown in growth is too severe,” Barthere said. “For example, the Services sector is holding up, as proven by the latest PMI business survey.”
“Fed Chair Powell has indicated that, were unemployment to increase with inflation sticky, he would have a preference for rate cuts (e.g. prioritizing the employment part of the mandate), so investors are pricing a ‘Fed put’ when growth data comes in weak (but not too weak),” she added. “Friday payroll is likely to become the next major data point in this narrative.”
Altcoins slip in a late afternoon sell-off
The afternoon selloff hit altcoins hard, leading to roughly 85% of the tokens in the top 200 recording losses.
Daily cryptocurrency market performance. Source: Coin360
HIghstreet (HIGH) bucked the downtrend to gain 14.9%, followed by an 11% increase for Livepeer (LPT), and a 9.1% gain for ConstitutionDAO (PEOPLE). Dog (DOG) suffered the largest drawdown, falling 10%, while Bitget Token (BGB) 9.9%, and Echelon Prime (PRIME) declined by 9.3%.
The overall cryptocurrency market cap now stands at $2.61 trillion, and Bitcoin’s dominance rate is 53.2%.
