Market Musings - Reawakening The Animal Spirits

It’s good to be back in the saddle after a brief hiatus while attending industry conferences in Singapore. If you haven’t had a chance to read my conference takeaways, you can find them on the Alpha Feed, and again at the bottom of this week’s Market Musings.

The TLDR as Anil always likes to remind us: “It’s easy to be bearish online. It’s hard to be bearish IRL.”

With respect to markets, a lot has happened over the last few weeks, both from a macro and crypto specific perspective. Without further ado, let’s dive in and do our best to read the market’s tea leaves.

Macro Musings – The Time Has Come For Policy To Adjust

On the macro front things are starting to look, dare I say it, extremely constructive again.

Over the last two weeks, we’ve had a barrage of macro developments that promise to shake up risk assets as we move into Q4 and beyond. These developments have taken form through policy shifts in both domestic and foreign markets.

At the September 18th FOMC meeting, JPow took stage and communicated to markets that “the time has come for policy to adjust.” This statement clearly marks the end to the monetary tightening regime that markets have navigated through for the last ~2 years. As such, the FOMC committed to what appears to be the first of many rate cuts over the next 12+ months, by slashing the FFR by 50bps.

Fed cuts rates by 50bps and signals more cuts to come. Dot plot shows the funds rate falling to 4.25-4.5% this year, suggesting one more 50bp move or two 25bp cuts at the two remaining meetings this year. Another 100bps of cuts projected for next year. pic.twitter.com/n6EiGpnnhU

— Colby Smith (@colbyLsmith) September 18, 2024

In fact, markets are projecting another 100bps of rate cuts over the next year. This should pave the way for a significantly more constructive liquidity environment for risk assets, of which crypto should be a huge beneficiary. These projections are obviously subject to change as dictated by incoming economic data, but the general path is clear; a boon to the global liquidity environment.

BREAKING: China is considering injecting up to $142 billion of capital into its biggest state banks, the first time since the global financial crisis in 2008, per Bloomberg

— unusual_whales (@unusual_whales) September 26, 2024

And the constructive policy shifts don’t stop with the Fed, as we’ve seen China & the PBOC begin to take the liquidity baton with rumors of nearly $150B of capital injections.

All of a sudden the feed is littered with takes on “why China matters”

China has always mattered – the PBOC is one of the two most influential CBs when it comes to liquidity, and *therefore* markets

It had an impact on the 2020/21 bu