(Kitco News) – Financial markets got off to a hot start on Friday as traders saw the end of the U.S. dock worker strike as a positive. However, prices moderated somewhat after the September jobs report significantly overshot expectations, showing the US economy added 254,000 jobs last month against the 150,000 expected and the unemployment rate dipped down to 4.1%.
With the labor market remaining robust, market watchers tempered their expectations for a larger rate cut at the November Federal Open Market Committee (FOMC) meeting, with the CME FedWatch Tool now showing a 90% chance for a 25 basis point cut.
While concerns around the evolving situation in the Middle East remain heightened, traders have started to slowly reengage with the markets, assuming the worst may be behind us.
“US stock index futures were all a touch firmer in early trade,” noted David Morrison, Senior Market Analyst at Trade Nation. “This followed yesterday’s lacklustre session which saw the majors little-changed but with a downside bias. It’s been a tricky start to the month, as investors finally take notice of intensifying hostilities across the Middle East.”
“Comments from President Biden have raised fears that the US may join Israel in launching an attack on Iran’s major oil hubs,” he added. “There has also been speculation that Israel may target Iran’s nuclear facilities. All this has led to a sharp rebound in crude prices, which in turn has seen oil and energy stocks outperform other sectors within the S&P.”
“It’s worth bearing in mind that the Dow and S&P were trading at record highs this time last week,” Morrison noted. “Since then, the two indices have lost 1.5% and 1.2%, respectively, suggesting that investors aren’t exactly running for the exits. Instead, geopolitics have provided an excuse for a mild round of profit-taking.”
As Middle East tensions simmer, Morrison said investors will now “get back to focusing on US domestic issues, which today means the Non-Farm Payroll report and the Unemployment Rate.”
“The Fed appears relaxed about inflation which it believes is on a sustainable path back to its 2% target,” he said. “Instead, it has turned its beady eyes to the labour market as its best indicator of US economic health. The last two payroll updates came in below forecasts, while the Unemployment Rate ticked higher. This fuelled concerns that the Fed had kept interest rates too high for too long, increasing the possibility of a hard economic landing. Equities sold off sharply. These fears subsequently dissipated to some extent, as it could be argued that this was a return to normal.”
“Unemployment had held near historically low levels thanks to around $3 trillion worth of pandemic stimulus,” Morrison added. “This in turn had persuaded the Fed to hold off from cutting rates as tightness in the labour market had the potential to trigger more inflation. Given all this, today’s payroll release has the potential to drive up volatility further.”
Volatility has indeed risen in the wake of the payroll release as stocks have pulled back from their highs, while gold prices saw a moderate sell-off and Bitcoin (BTC) fell back below $61,000 after touching $62,000 in the lead-up to the jobs data release.
BTC/USD 1-hour chart by TradingView
“The Fed is looking for a strong labor market, which the non-farm payroll has indicated, rising against expectations,” said Leena ElDeeb, Research Analyst at 21Shares. “Moreover, job openings grew in August, demonstrating strength in the labor market.”
“Bitcoin and the longer tail of crypto assets are sensitive to labor market data because it influences the Fed’s decision on rate cuts, which in turn have a positive impact on Bitcoin as borrowing costs fall,” she noted. “Therefore, we expect flows to start recovering following the escalation of geopolitical tensions that shook the market over the past week.”
So far, the month of October has not gone as crypto traders were hoping, as the widespread expectation of ‘Uptober’ has been met with declines across the board.
“Late September enthusiasm for the forthcoming ‘Uptober,’ the month when Bitcoin has historically generated its strongest returns, waned throughout the weak,” said Charles Yu, Vice President of Research at Galaxy Digital. “Data from CoinGlass showed 86% of crypto traders were bullish going into the month, which led to more than $450m of long liquidations on Tuesday as spot prices declined.”
“The confluence of these major market events this week drove declines across most risk assets, though we note that Bitcoin fared relatively well as it successfully held above the $60k level,” he added. “Bitcoin and other crypto assets tend to exhibit more downside beta with equities, especially around major geopolitical events such as this week's escalation in the Middle East, but it is worth noting that Bitcoin has historically outperformed both gold and the SPX in the 60 days following the event, as highlighted by Blackrock in its recently published 'Bitcoin: A Unique Diversifier' report.”
“Furthermore, hopes for ‘Uptober’ remain intact, as October gains have actually predominantly begun in the second week of October,” Yu noted. “While geopolitical uncertainty remains, specifically around whether and to what extent Israel will retaliate against Iran, the outlook for Bitcoin and cryptos looks constructive through the rest of the year.”
“Seasonality and cyclicality are both seen as supportive for Bitcoin,” he said. “Central banks are concurrently easing monetary policy, and historically rises in Global M2 have been supportive of rising Bitcoin prices.”
Another tailwind is the fact that “U.S. banks and brokerages are beginning to onboard the Bitcoin ETFs for offer to their end-clients, and the FTX estate is expected to begin cash payments to creditors over the next several months (dependent on next week’s court hearing to confirm the restructuring plan), which could see fresh cash invested in digital assets,” Yu said. “The U.S. presidential election will also be an important catalyst, although our view is that the outcome will likely range from neutral/slightly positive to very positive for digital assets, as we view Harris as likely to be slightly more supportive of digital assets than Biden’s administration.”
Prior to the payroll release, TradingView analyst Xanrox said, “Bitcoin is ready to go higher!” and charted a path for King Crypto “to hit 64,000 - 63,500 USDT in the immediate short-term.” Thus far, BTC price has followed his projected move higher, albeit with volatility.
He cited the following developments for this outlook: “1) The falling wedge is breaking out, the price is now above the main trendline, and the downtrend is exhausted; 2) [His] Elliott Wave count suggests that we have completed the corrective pattern WXYXZ (triple three); 3) Bitcoin created 2 major FVG (fair value gaps) above the current price. Usually, these gaps tend to be filled pretty quickly, so be ready for the bull price action!; 4) The 200 1H MA (simple moving average) needs to be tested as well. We saw a breakout of this MA, but never seen a retest of it; and 5) October is statistically an extremely profitable month for Bitcoin, so this gives us a statistical advantage.”
“Bitcoin is currently the most bullish coin from the high-cap category,” Xanrox concluded, adding that he expects Bitcoin dominance “to go up to 60%. After that, we should see an alt season!”
BTC dominance 1-week chart by TradingView
At the time of writing, Bitcoin trades at $61,623, an increase of 2.46% on the 24-hour chart.
