(Kitco News) – Financial markets struggled amid rising recession fears on Friday after the latest jobs report came in lower than expected, providing more evidence that the U.S. economy continues to cool and boosting the odds of an interest rate cut in September.
“Stocks tumbled on Friday following a disappointing jobs report for July, sparking fears of a potential recession,” said analysts at Secure Digital Markets. “Job growth in the U.S. fell short of expectations, with nonfarm payrolls increasing by just 114,000, well below the estimated 176,000. The unemployment rate climbed to 4.3%, its highest level since October 2021, surpassing forecasts of 4.1%.”
Economists are now warning that the Fed may have kept rates too high for too long, which has put the U.S. on the path to recession. This has led analysts at JPMorgan and Citibank to predict three interest rate cuts before the end of 2024, including 50 basis point (bps) cuts in September and November, followed by a 25 bps cut in December.
JPMorgan, $JPM, and Citi, $C, now predict the Fed to cut rates by 50 bps in September, 50 bps in November, 25 in December (!!!)
All changed in 24 hours where the probability of changing 50bps in September was only 11%!!!— unusual_whales (@unusual_whales) August 2, 2024
The pan sell-off left traders with few options to preserve their wealth as stocks, oil, gold, and cryptos all drifted lower.
At the closing bell, the S&P, Dow, and Nasdaq all finished in the red, down 2.11%, 1.83%, and 2.72%. At the time of writing, gold is down 0.09% and trades at $2,478.60, while crude oil fell 3.0% to trade at $74.02.
Bitcoin (BTC) “has taken a hit, dropping 11% since the start of the week,” noted Secure Digital Markets analysts. “Heavy selling from major exchanges and whale wallets, coupled with recent geopolitical tensions, have been major contributors. The 50-day moving average around $63,000 is a critical level to watch. If BTC breaks and closes below this, it could signal a bearish trend, pushing prices down to $60,000.”
BTC/USD Chart by TradingView
After spiking to a high of $65,510 near midday on Friday, Bitcoin has since pulled back amid the weakness across financial markets. At the time of writing, BTC trades at $62,290, a decrease of 3.42% on the 24-hour chart.
Recession odds spike
The market’s response to the low jobs print may seem like an overreaction, but the widespread fear is not without merit as a key recession indicator was triggered by the 4.3% unemployment print – the Sahm Rule.
According to Investopedia, the Sahm rule – named after Claudia Sahm, a macroeconomist who worked at the Federal Reserve – says the early stages of a recession are “signaled when the three-month moving average of the U.S. unemployment rate is half a percentage point or more above the lowest three-month moving average unemployment rate over the previous 12 months.”
During an interview with Bloomberg on Friday, Sahm confirmed that “It triggered,” when asked if “The Sahm rule was in force at this moment.” Sahm added that while she thinks the U.S. isn’t currently in a recession, “we’re not headed in a good direction.”
“We’ve seen way too much momentum in the unemployment rate in recent months – 4.3%,” she said. “So whether we are at that moment of a recession or not, this is your build into substantial weakening in the labor market.”
Sahm noted that while this is just one indicator, there have been other data points pointing to growing weakness in recent months, and the 4.3% unemployment rate just verifies that the economy has seen a high level of slowing.
Jag Kooner, Head of Derivatives at Bitfinex, agreed with this assessment.
“Factors like increased labour force participation, particularly among immigrants, and the ongoing mismatch between job seekers and available positions have also contributed to the unemployment situation,” Kooner said. “These complexities, combined with an inverted yield curve – another recessionary signal – have created an atmosphere of uncertainty.”
He added that while layoffs have increased, “they remain historically low. The Federal Reserve, grappling with persistent inflation, has adopted a cautious approach, maintaining interest rates at elevated levels. However, the possibility of a rate cut in the near future is gaining traction as economic indicators show signs of softening.”
“If the unemployment number supports the FEDs view that inflation is coming under control, we can see a rate cut coming in September, making a bullish case for Bitcoin,” Kooner said.
“As for August, we are seeing a lack of liquidity in many assets, and 'the summer' could be one of the reasons for it,” he concluded. “We are currently seeing significant buy walls being built at range lows on several Altcoins, and we expect the Bitcoin price to range between 61K and 70K, which will provide an accumulation zone.”
David Rosenberg, founder and president of Rosenberg Research & Associates Inc., also said, “The Sahm Rule triggered the recession call today.”
“The chart here shows that the +80 bp jump in the jobless rate over the past year is a 100% iron-clad indicator that the downturn has either arrived or is about to,” he tweeted.
“The Fed is as behind the economic curve now as it was behind the inflation curve back in 2021-2022,” Rosenberg warned. “Most of this tightening phase and cyclical bear market in bonds is set to unwind in dramatic fashion.”
Altcoins finish the week in the red
It was a red day for the altcoin market as 90% of the tokens in the top 200 recorded losses to end the week.
Daily cryptocurrency market performance. Source: Coin360
Notable gainers include aelf (ELF), Golem (GLM), and NEM (XEM), which saw increases of 21.6%, 9.3%, and 8.8%, respectively. Popcat (POPCAT) was the biggest loser, falling 16.9%, followed by a loss of 16.4% for Mog Coin (MOG) and a decline of 13.8% for Ponke (PONKE).
The overall cryptocurrency market cap now stands at $2.22 trillion, and Bitcoin’s dominance rate is 55.6%.
