😬 Fed on edge! ISM & NFP in focus, Bitcoin battles 60K!

Good Morning!

The ECB might be gearing up for a double whammy of 25 basis point cuts in October and December, especially after top hawk Isabel Schnabel's surprising shift to a more dovish stance. Meanwhile, across the pond, all eyes are on Friday's U.S. payroll figures, with Thursday's jobless claims and ISM services survey serving as appetizers. New Zealand's central bank is also in the spotlight, with economists betting on aggressive 50 basis point cuts in both October and November. In Asia, it's a mixed bag. Hong Kong's Hang Seng took a nosedive after its recent stratospheric rise. Japan's Nikkei, on the other hand, is riding high on Prime Minister Ishiba's unexpected dovish turn. It seems the land of the rising sun isn't ready for rising rates just yet.

In today’s email:

• FedWatch: Fed proceeding cautiously. All eyes on ISM today and NFP Friday

• Bitcoin: Bitcoin holding above $60K… for now

• Ripple: Still having SEC troubles

• Gold: Physical demand getting crippled at current prices?

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THE BIG IDEA

Richmond Fed President Thomas Barkin urges caution on inflation despite recent rate cuts, emphasizing ongoing economic uncertainties and the need for vigilance

The Federal Reserve's recent half-point rate cut might have some popping champagne corks, but Richmond Fed's Thomas Barkin is here with a sobering reminder: the inflation fight is far from over. It's more like we've just entered a new, trickier round of the bout.

Barkin, who holds a coveted voting position on the Fed's policy committee this year, backed last month's cut but isn't ready to declare victory. He views the move as a necessary recalibration rather than a full-scale retreat. "The number that now seemed out of sync was the fed funds rate," he explained, acknowledging progress while warning against premature celebration.

With core PCE inflation stubbornly hanging around 2.7%, Barkin doesn't foresee a rapid decline anytime soon

He's keeping a hawkish eye on potential wildcards that could upset the economic applecart – from ongoing port strikes to escalating tensions in the Middle East.

The job market presents another enigma. While some fret about rising unemployment, Barkin's entertaining a different, almost contrarian scenario: What if continued economic growth leaves employers scrambling for workers? It's a stark reminder that in the world of economics, the only constant is unpredictability.

As we navigate these uncharted waters of monetary policy, Barkin's message is crystal clear: stay alert, remain flexible, and be prepared to adapt on the fly. The inflation battle may not be won, but with careful navigation and a healthy dose of caution, we might just avoid the economic icebergs lurking beneath the surface.

In Barkin's view, the Fed's recent actions don't signal an end to the fight, but rather a strategic repositioning. As we move forward, he emphasizes the need for vigilance, data-dependency, and a willingness to adjust course as new information emerges. It's a delicate balancing act, one that requires both precision and adaptability in equal measure.

MARKETS AT A GLANCE

TOP NEWS

BOE Governor Bailey's dovish comments spur increased bets on rate cuts and impact pound's value

Traders are ramping up bets on BOE rate cuts following Governor Andrew Bailey's dovish remarks. Markets now fully price a quarter-point cut in November, with a 70% chance of another in December. The pound slid to a two-week low, while gilts gained. Bailey's hint at potentially more aggressive cuts, contingent on positive inflation news, marks a shift from previous cautious messaging on gradual easing.

ECB terminal rate pricing may be overly pessimistic, potentially leading to higher Bund yields

Markets currently price the ECB's terminal rate at 1.75% by mid-2025, below the estimated neutral range of 2-2.25%. This pessimistic outlook seems premature given current economic data. The 10Y Bund yield could rise if the terminal rate is repriced higher. Resilient labor markets and wage growth suggest limited recession risks, but upcoming U.S. payroll data may be a more significant driver for longer euro rates.

Analysts maintain BOJ rate hike expectations despite PM Ishiba's dovish comments

Despite Prime Minister Ishiba's unexpected dovish turn causing a sharp yen drop, market analysts are sticking to their Bank of Japan policy expectations. Many still anticipate a rate hike by early 2025, if not sooner. Factors influencing the BOJ's decision include yen stability, U.S. economic performance, and inflation outlook. The central bank's next policy review is set for October 30-31, with another meeting in December.

CRYPTO

Bitcoin stable amid market fluctuations; XRP drops on SEC appeal

Bitcoin holds steady above $60k while Ether dips 4%+ to $2,325 amid geopolitical tensions. Whale accumulation of Bitcoin continues, suggesting optimism for future gains. XRP plunges over 10% following the SEC's appeal of a ruling on crypto market regulation. AI tokens remain unaffected by OpenAI's $6.6 billion fundraise. The broader crypto market experiences a sell-off, with the CoinDesk 20 index down 3%.

Veteran trader Peter Brandt has pointed out that Bitcoin is forming a "three blind mice" pattern, hinting at a potential further decline in the cryptocurrency’s price

This pattern, often seen as a continuation signal, suggests that Bitcoin may continue its downward trend. Brandt also emphasized that Bitcoin's recent rally hasn’t disrupted its 7-month sequence of lower highs and lows. Bitcoin has dropped 7.1% over the last three days amid rising geopolitical tensions and economic uncertainty in the U.S.

Taiwan's Financial Supervisory Commission (FSC) has drafted new anti-money laundering (AML) regulations

The new rules require virtual asset service providers (VASPs) to register by September 2025 or face criminal penalties, including up to two years of imprisonment and fines of up to NT$5 million ($155,900). The new rules, set to take effect on January 1, 2025, aim to tighten regulatory obligations and increase compliance within the crypto sector, moving toward a licensed financial institution model. This follows the FSC’s earlier rules from July 2021, strengthening the legal framework for crypto firms in Taiwan.

Ripple has criticized the SEC's decision to appeal a recent ruling in the regulator's legal case against Ripple

The SEC is appealing an August ruling in which a federal judge found that Ripple’s programmatic sales of XRP to retail investors did not violate securities laws, but institutional sales did. Garlinghouse accused the SEC of wasting taxpayer money and continuing unnecessary legal warfare, while Alderoty mentioned the possibility of Ripple filing a cross-appeal. XRP's value dropped 9% following the SEC’s appeal announcement.

GOLD

Recent surge in gold prices, hitting a record $2,685.42 per ounce, has sharply reduced physical demand in key markets such as India, China, and Europe.

While some consumers are selling their holdings to capitalize on the price rise, others are struggling to afford the precious metal. Demand in India, the second-largest bullion market, has plummeted since prices reached all-time highs, despite an earlier boost from reduced import duties. European investors are shifting to yield-bearing assets, and demand in China is also weakening. Analysts expect stronger demand for gold-backed ETFs but note current inflows remain modest.

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