The rate cut rally: Earnings, gold, and Bitcoin in the balance

The rate cut rally: Earnings, gold, and Bitcoin in the balance

History shows that equities often deliver solid gains in the year following the start of such cycles, with the S&P 500 averaging around 14 per cent returns over 12 months based on past data from various cycles. Yet the initial month after the first cut tends to bring choppiness, as markets adjust to shifting monetary policy.

In this case, equities rallied strongly leading up to the cut, pushing the S&P 500 up 15 per cent in the past six months and a whopping 32 per cent from its yearly lows. I see this preemptive surge as a sign of market optimism, but it also raises flags for potential consolidation ahead.

Investors priced in these cuts long ago, so the real test comes from upcoming events like speeches from 10 FOMC governors and the PCE inflation report due on September 26. If inflation data surprises on the upside, volatility could spike, reminding everyone that even dovish Fed actions carry risks in an economy where growth projections and unemployment trends diverge sharply.

Fund managers’ bold bets on risk assets

Fund managers continue to lean heavily into risk assets, particularly equities, despite nagging worries about persistent inflation and a weakening US dollar. This positioning strikes me as bold, perhaps overly so, given the mixed signals from the broader economy. Many in the industry view artificial intelligence as a deflationary force that could counter current inflationary pressures, an idea that holds water when you consider how AI efficiencies might drive down costs in sectors like manufacturing and services.

Gold’s performance this year underscores these tensions, with prices surging 38 per cent year-to-date amid buoyant rate-cut expectations and geopolitical uncertainties. Research into recent gold price drivers points to factors like central bank buying, trade tensions, and lower interest rates making the metal more appealing as a hedge.

However, fund flows indicate much of this buying stems from speculation rather than genuine hedging, and professional asset managers maintain low exposure to gold and digital assets. In my view, this creates intriguing opportunities for savvy investors to buy on dips, especially as gold hit US$3685.30 per ounce recently. The under-allocation by institutions suggests room for further upside if economic headwinds intensify, but it also warns against chasing the rally without careful consideration.

Balancing strategy: Barbell approach and diversification

Strategic advice in this environment boils down to respecting the Fed’s direction without blindly following the herd. The central bank’s dovish stance supports companies with strong earnings growth, yet piling into mega-cap tech stocks at current valuations feels precarious. A barbell approach makes sense here, where you hold core positions in quality names, add selectively during pullbacks, and diversify into global themes and yield-focused plays.

Singapore’s yield stocks stand out, having outperformed the S&P 500 over both five- and ten-year periods, which bolsters the argument for regional diversification beyond US borders. I favour this strategy because it balances growth potential with income stability, particularly in a world where US-centric portfolios risk overexposure to domestic policy shifts.

With the Fed projecting more cuts on October 29 and December 12, lower rates could fuel corporate borrowing and expansion, but diverging economic indicators demand vigilance. Unemployment might tick up if growth slows more than expected, potentially pressuring equities despite the supportive policy backdrop.

Macro shifts and geopolitical influences

Turning to the broader macro picture, global risk sentiment holds firm thanks to the allure of additional rate cuts enhancing corporate earnings outlooks. The week ahead features the high-level General Debate at the 80th UN General Assembly starting Tuesday, with President Trump addressing the opening session and Fed Chair Powell discussing the economic outlook. These events could inject fresh narratives into markets, especially amid positive developments in US-China relations.

President Trump’s recent conversation with Chinese leadership led to a deal on the popular Chinese-owned social media app TikTok, allowing it to continue operations in the US under new controls, which eased some trade anxieties. Wall Street responded enthusiastically, with major indices hitting record highs on Friday, the Dow Jones up 0.37 per cent, S&P 500 up 0.49 per cent, and Nasdaq up 0.72 per cent.

Treasury yields edged higher, the 10-year at 4.127 per cent and the 2-year at 3.572 per cent, reflecting a mix of growth optimism and inflation watchfulness. The dollar index climbed 0.30 per cent to 97.64, while gold rose 1.1 per cent on rate-cut bets. Brent crude dipped 1.1 per cent to US$66.68 per barrel following EU sanctions on Russian oil vessels and buyers, highlighting ongoing energy market fragilities. Asian equities showed mixed results Friday and in early trading today, with US futures pointing to a lower open, suggesting caution amid these crosscurrents.

Bitcoin volatility and regulatory headwinds

Bitcoin’s recent dip adds another layer to the market mosaic, with the cryptocurrency falling 0.93 per cent to US$114,566 over the past 24 hours, lagging the broader crypto market’s 1.91 per cent decline. This underperformance stems from profit-taking after hitting recent highs, technical breakdowns near the US$115,400 resistance level, and regulatory uncertainties.

Drawing from similar patterns in September 2024 analyses, when Bitcoin traded around US$63,000 and faced consolidation phases, the current setup echoes familiar volatility drivers like leverage unwinds and momentum shifts. Over US$176 million in long positions were liquidated as prices tested US$115,000 support, amplifying the drop in a classic liquidity trap where open interest spiked 4.14 per cent to US$937 billion.

Traders piled in near resistance, only to face swift reversals, which I interpret as a healthy correction in an asset that has risen 81 per cent year-to-date. The failure to break above the 23.6 per cent Fibonacci retracement at US$115,400 triggered algorithmic selling, with the MACD histogram still positive at +265 but RSI hovering around 51-53, indicating waning momentum.

Bulls must secure a close above that level to reclaim initiative; otherwise, a breach of US$114,500, the 30-day simple moving average, could cascade toward US$110,000.

Regulatory developments weigh heavily on Bitcoin’s short-term path, presenting a neutral but noisy influence. The US Treasury’s commentary on the GENIUS Act, issued on September 20, emphasises stablecoin regulations requiring full reserves in liquid assets like Treasuries and technological capabilities for freezing assets, aiming to foster innovation while curbing risks. This act, signed into law earlier this year, mandates issuers to comply with federal laws, potentially stabilising the crypto ecosystem but introducing oversight that cools institutional enthusiasm.

Meanwhile, the EU’s MiCA regulation drives exchange consolidation, enforcing consumer protections, market integrity, and restrictions on stablecoin use as exchange mediums, which impacts global flows. Exchanges adapting to MiCA gain credibility and access to unified EU markets, but the compliance shifts have slowed inflows, with ETF volumes dipping and minor outflows from products like GBTC.

In my opinion, these headwinds represent growing pains for the sector; long-term clarity should prove bullish by attracting more institutional capital, yet the immediate uncertainty often halts rallies, as seen in past cycles.

Closing thoughts: Cautious optimism ahead

Overall, the market’s resilience amid the Fed’s pivot impresses me, but I remain cautious about overextended positions in tech and crypto. The historical precedent of positive equity returns post-rate cuts offers encouragement, yet the unique blend of geopolitical events like the UNGA, US-China thawing via the TikTok agreement, and persistent inflation worries calls for measured optimism. Gold’s speculative surge and Bitcoin’s technical wobbles serve as barometers for broader risk appetite, suggesting investors diversify thoughtfully.

The barbell strategy aligns with my view that quality growers paired with yield plays provide a sturdy foundation, especially as Singapore’s outperformance demonstrates the value of global exposure. With PCE data looming and more Fed cuts on the horizon, markets could consolidate, but the underlying dovish support tilts the scales toward gradual upside. Still, chasing crowds in mega-caps or digital assets without waiting for pullbacks risks unnecessary pain; patience often rewards in these environments.

As we head into the final quarter, keeping an eye on unemployment trends and corporate earnings will prove crucial, potentially defining whether this cycle mirrors the average 14 per cent gain or veers into choppier territory. The economy’s divergences remind us that while the Fed guides, real-world data ultimately steers the ship.

 

Source: https://e27.co/the-rate-cut-rally-earnings-gold-and-bitcoin-in-the-balance-20250922/

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Trump’s CBDC Ban: Safeguarding Privacy and Private Innovation

Trump’s CBDC Ban: Safeguarding Privacy and Private Innovation

President Donald Trump has issued an executive order titled “Strengthening American Leadership in Digital Financial Technology,” marking a pivotal shift in U.S. digital asset policy. The order explicitly prohibits the development of a central bank digital currency (CBDC), rescinding prior initiatives under the Biden administration that emphasized CBDC exploration. This move aligns with Trump’s campaign pledges to prioritize privacy and private-sector innovation, framing CBDCs as threats to financial stability, privacy, and national sovereignty. The order also establishes the Presidential Working Group on Digital Asset Markets, led by White House AI and crypto advisor David Sacks, to propose a federal regulatory framework for digital assets—including stablecoins—within six months. The group is tasked with evaluating the feasibility of a “strategic national digital asset stockpile,” potentially sourced from lawfully seized cryptocurrencies.

The executive order reverses regulatory hurdles for the crypto industry, notably the SEC’s reversal of Staff Accounting Bulletin 121 (SAB 121). The previous rule had imposed stringent capital requirements on banks offering crypto custody services, deterring institutional participation. The new Staff Accounting Bulletin 122 (SAB 122) adopts a more flexible approach, allowing banks to treat crypto custody obligations under standard contingent liability principles. This change reduces capital burdens, enabling financial institutions to offer institutional-grade custody solutions. The shift is expected to enhance competition with international firms and expand access to secure crypto services for U.S. customers.

Industry leaders and analysts have characterized Trump’s CBDC ban as a “game-changer,” emphasizing its potential to accelerate private-sector innovation in blockchain and stablecoins. Anndy Lian, an intergovernmental blockchain adviser, noted that the executive order signals a “structured” regulatory environment, potentially attracting institutional investors. The ban on CBDCs is seen as a vote of confidence in decentralized systems like Bitcoin and Ethereum, which could gain legitimacy and market traction. Additionally, the exclusion of the Federal Reserve and FDIC from crypto-related working groups is viewed as a step toward curbing past “debanking” efforts, where financial institutions were pressured to avoid crypto businesses.

The Working Group’s mandate includes addressing cross-border payment challenges, where stablecoins are increasingly seen as viable alternatives to CBDCs. By reducing transaction costs and enabling real-time settlements, stablecoins could revolutionize international trade. However, compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations remains a hurdle. Payment providers must invest in robust KYC and monitoring systems to meet regulatory expectations, a challenge the unified federal framework aims to streamline. The order also mandates a 30-day review of existing regulations and 60-day recommendations for modifications, underscoring the administration’s urgency in fostering a pro-innovation environment.

While the CBDC ban has cleared the House via the National Defense Authorization Act, Senate approval is pending. Trump has already fulfilled several crypto-related campaign promises, including pardoning Silk Road founder Ross Ulbricht and appointing crypto-friendly SEC chair Paul Atkins. However, legislative efforts like the Clarity Act—which would enshrine self-hosted wallet protections—remain stalled. Market reactions have been mixed: Bitcoin and Ethereum have shown modest fluctuations, reflecting uncertainty around regulatory clarity and interest rate policies. Analysts suggest that lower rates could further bolster crypto adoption, though the Federal Reserve’s current stance remains neutral.

The executive order’s emphasis on blockchain innovation positions the U.S. to compete globally, particularly against China’s digital yuan initiative. With 140 countries exploring CBDCs, the U.S. pivot to private-sector solutions could differentiate its approach. Critics, however, warn of potential risks, including regulatory fragmentation if states maintain conflicting policies. The Working Group’s six-month timeline for a national framework is critical to ensuring coherence. For now, the order signals a strategic bet on blockchain’s transformative potential, balancing innovation with safeguards for financial integrity.

The administration’s dual focus on crypto stockpiles and regulatory clarity reflects a broader vision of digital asset leadership. By leveraging seized cryptocurrencies and fostering private-sector solutions, the U.S. aims to solidify its role in the evolving digital economy. While challenges remain—particularly in aligning AML/CTF compliance with decentralized systems—the executive order represents a decisive step toward redefining America’s digital financial landscape.

 

Source: https://www.ainvest.com/news/trump-cbdc-ban-safeguarding-privacy-private-innovation-2509/

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Soft landing or FOMO return? Markets rally on Fed cut amidst inflation caution

Soft landing or FOMO return? Markets rally on Fed cut amidst inflation caution

Global risk sentiment has improved markedly in recent days, driven by the Federal Reserve’s decision to lower interest rates, which has injected fresh optimism into financial markets worldwide. Investors appear to view this move as a signal that policymakers are prioritising economic growth amid signs of a cooling labour market, even as inflation remains somewhat elevated. The cut has ripple effects across asset classes, from equities to commodities and cryptocurrencies, fostering an environment where risk-taking feels more rewarded. In this context, Wall Street has pushed to new heights, while emerging trends in digital assets suggest a sector on the cusp of broader institutional acceptance.

The Federal Reserve announced a 25 basis point reduction in its benchmark rate on September 17, bringing it down from previous levels and marking the first easing since late last year. This adjustment aims to support hiring and prevent a sharper slowdown in employment, as recent data showed initial jobless claims dropping significantly to 231,000 for the week ending September 13, the largest decline in nearly four years. Officials emphasised that the move addresses risks to the job market while keeping an eye on inflation, which ticked up slightly to 2.9 per cent in August but remains within a manageable range. Markets had largely anticipated this step, with probabilities exceeding 75 per cent leading up to the announcement, though some volatility ensued as traders digested the forward guidance indicating potential for two more cuts by year-end.

In contrast, the Bank of England opted to hold its key rate steady at four per cent on September 18, citing persistent inflationary pressures alongside uncertainties in growth and the jobs landscape. The Monetary Policy Committee voted 7-2 to maintain the status quo, with members expressing caution that the UK economy is not yet out of the woods on price stability. Looking ahead, the Bank of Japan is set to reveal its policy stance today, with expectations leaning toward no change from the current 0.5 per cent short-term rate, as officials navigate tariff risks and a potential US slowdown. These divergent approaches among major central banks highlight a global economy at a crossroads, where easing in one region could spill over to influence others.

Equity markets have responded positively overall, with US indices scaling fresh peaks on September 18. The Dow Jones Industrial Average climbed 0.27 per cent to close above 46,000, the S&P 500 advanced 0.48 per cent to around 6,600, and the Nasdaq Composite surged 0.94 per cent to over 22,200, buoyed by strength in technology shares. This rally reflects investor confidence that lower borrowing costs will sustain corporate earnings and consumer spending. Yields on US Treasuries moved higher in response to the robust jobless claims figure, which eased fears of a rapid labour market deterioration. The 10-year Treasury note rose three basis points to above 4.11 per cent, while the 2-year yield increased two basis points to 3.56 per cent. Such movements suggest markets are pricing in a soft landing rather than a recession, though the bond market’s reaction also underscores ongoing sensitivity to economic data.

Currency and commodity dynamics have shifted as well. The US dollar index strengthened by 0.49 per cent to 97.35, benefiting from the perception of relative US economic resilience amid global uncertainties. Gold prices dipped 0.4 per cent to US$3,643.40 per ounce, as profit-taking followed a recent record high, with the metal’s appeal dimming slightly in a risk-on environment. Brent crude oil fell 0.9 per cent to US$67.32 per barrel, pressured by concerns over US demand despite the rate cut’s potential to stimulate activity. These declines illustrate how commodities are caught between supportive monetary policy and lingering worries about global growth, particularly with trade tensions simmering.

Asian equities displayed a mixed performance, trimming some gains post the Fed’s meeting but still showing resilience in key benchmarks. Japan’s Nikkei 225 crossed the 45,000 threshold for the first time, closing higher amid a tech-led advance, reflecting spillover optimism from US markets. Early trading today saw varied movements across the region, with US futures pointing to a positive open, suggesting the upbeat sentiment may persist. This regional response highlights the increasing interconnectedness of global markets, with policy shifts in the US often setting the tone for Asia’s trading sessions.

Cryptocurrencies, on the other hand, have shown remarkable vigour, with Bitcoin maintaining momentum around US$117,000 despite initial sluggishness following the rate cut. Technical indicators point to a bullish setup, with a trend line support at US$115,800 and recent breaks above resistances at US$116,200 and US$116,500. The price peaked at US$117,920 before a minor retracement to the 50 per cent Fibonacci level near US$116,750. Analysts anticipate resistance at US$117,500 and US$117,850, with a clear breach of US$118,000 potentially propelling it toward US$118,500 or even US$118,800. On-chain data reveals strong institutional accumulation, with ETF flows and whale activity supporting the floor. Social media discussions on platforms such as X highlight this breakout potential, with traders noting that a close above US$117,000 on high volume could ignite further upside. However, overbought signals from the RSI above 88 suggest a possible short-term pullback, with supports at US$116,550 and US$115,800 if resistance holds firm.

Solana has emerged as a standout performer, rallying beyond US$250, its highest in nearly eight months, and outperforming the altcoin market by 25 per cent over the past month. Institutional adoption drives this surge, with corporations holding over 17 million SOL tokens valued at US$4.3 billion. Notable players include Forward Industries with 6.82 million SOL, Sharps Technology at 2.14 million, and others like Defi Development Corp and Upexi Inc., nearing 2 million each. Helius Medical Technologies’ $500 million SOL treasury program echoes strategies like MicroStrategy’s Bitcoin reserves, bolstering SOL’s case as a reserve asset. The blockchain’s total value locked stands at US$14.6 billion, making it the second-largest DeFi ecosystem, while a 6.8 per cent staking yield surpasses Ethereum’s 2.9 per cent. Options data shows higher call premiums, indicating bullish trader sentiment, with predictions eyeing US$300 as the next target amid ETF approval hopes. X conversations amplify this enthusiasm, with users pointing to treasury strategies and network upgrades as catalysts.

Regulatory developments have further catalysed crypto’s ascent. The US and UK signed a memorandum to collaborate on quantum computing and AI, impacting blockchain security. Coinbase CEO Brian Armstrong expressed confidence in the Digital Asset Market Clarity Act passing through Congress, clarifying the roles of the SEC and CFTC. Australia’s ASIC eased stablecoin licensing, while the SEC approved Grayscale’s Digital Large Cap Fund—the first multi-asset crypto ETF and proposed rule changes to expedite ETF listings. These steps signal a maturing framework, reducing uncertainty and attracting institutional capital.

From my perspective, this moment feels pivotal for cryptocurrencies. The convergence of monetary easing, regulatory clarity, and institutional inflows positions digital assets for sustained growth, potentially eclipsing traditional markets in volatility but also in returns. Bitcoin’s resilience above US$117,000 amid broader economic shifts suggests it’s evolving from a speculative play to a legitimate hedge, much like gold in past cycles. I remain cautious. Rate cuts don’t erase risks like stagflation or geopolitical tensions, and crypto’s history of sharp corrections warrants prudence. Investors should diversify their portfolios and closely monitor macroeconomic indicators.

Source: https://e27.co/soft-landing-or-fomo-return-markets-rally-on-fed-cut-amidst-inflation-caution-20250919/

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