Daily Market News: Economists: The Fed should be raising the rates and not cutting them

Fed to inject billions to bolster liquidity, while cryptos see temporary boost

Mati Greenspan, Senior Market Analyst at FX broker eToro, has provided his daily commentary on traditional and crypto markets for July 31, 2019. The text below is an excerpt and does not contain the full analysis.

Some crypto supporters claim that you’re not a true advocate unless you’re running your own node. Well, it seems the government is about to do just that.

It’s important to note that running a node of the network is not the same as mining a cryptocurrency. A full node is a computer that downloads the entire history of a blockchain in order to verify the authenticity of the transaction history. In short, they support the network by verifying that everybody has the same version of history and nobody is cheating. This is different from miners, who add new transactions to the blockchain and receive a reward for it.

In short, anyone can run a node for any open permissionless blockchain and according to this government contract, the SEC is looking to hire a firm to set up nodes on as many cryptos as possible in order “to support its efforts to monitor risk, improve compliances and inform commission policy with respect to digital assets.

In other words, the SEC is looking to gather information about these projects and in order to do so, they are willing to become a fully participating, supportive, and contributing member of the crypto community.

Today’s Highlights

  • SEC to Run its Own Node: The SEC is looking for a firm to set up nodes on as many cryptos as possible in order to increase its monitoring and participation in the crypto economy.
  • Federal Reserve Bank Expected to Cut Interest by .25%: For the first time in a decade, the Federal Reserve Bank will cut its benchmark interest rate by .25%, a move designed to accommodate markets and artificially preserve the current bull run.
  • Crypto Market Bounces Back: The crypto market bounced back after yesterday’s congressional hearings, with BTC sitting above $9,800.

Please note: All data, figures & graphs are valid as of July 31st. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Today is the day. For the first time since the financial crisis more than a decade ago, the Federal Reserve Bank in the United States will cut its benchmark interest rate by 0.25%.

The move comes in spite of stern warnings from major economists who say that given the current economic conditions, the Fed should be raising the rates at the moment and not cutting them. Here we can see one such warning from the head of a firm that oversees approximately $270 billion.

In a note to investors (titled: On the Other Hand) one of my favorite market commentators, Howard Marks from Oaktree Capital, laid out the pros and cons of such a move. In Marks view, it’s quite clear that the Fed is bowing to pressure from the financial markets and choosing to artificially prolong the current bull run but that the long term consequences could be much worse as a result.

A few days ago on LinkedIn, Adam Johnson confirmed to me on LinkedIn that the Fed is definitely going the wrong way and are frontrunning poor trade policy with poor monetary policy.

Now, because this move has been highly anticipated by the market there is a high likelihood that it is already fully priced into the markets. As of the closing bell yesterday the market was even pricing in a 17% chance that the Fed will cut the rates by 0.5% instead of the traditional 0.25%. If that happens, no doubt there will be some celebrations in the stock prices but may also signal that the economy is in much more trouble than we thought.

Of course, at this point, in the off chance that they do decide to do the prudent thing and leave rates unchanged, it could send the markets into a tizzy.

For crypto advocates, today’s Fed event presents a rather unique historic landmark.

Later today, I will do a special interview with BlockTV to discuss how the markets might react to this, so watch out for that on social media in the next few hours.

Tomorrow, we’ll hear from the Bank of England who will give their interest rate decision. Unfortunately, this seems like an exact opposite situation. With Boris Johnson looking increasingly likely to trigger a hard Brexit and the Pound threatening to reach its lowest level since 1985, there is a perfectly good economic case for a rate cut, yet markets do not expect one.

Taking Off

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Crypto Volume Bounce Back

It seems that crypto market volumes did bottom out ahead of yesterday’s congressional hearings. Today action across major exchanges has returned to normal levels and even transfers on the blockchain have come back from their lows this morning.

Volumes on Wall Street, however, are still lagging. As we can see, the number of contracts traded at the CME Group has been declining steadily for the last two weeks. They’ve always been laggards in this market anyway though, joining when volatility spikes and leaving when it’s low.

What may well be a leading indicator, on the other hand, is the sentiment on social media. As can be seen from data at TheTie.io tweeters are incredibly positive now that we’ve seen a solid bounce off the $9,000 support level.

Mati Greenspan can be found on LinkedInTwitter, or etoro

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

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