Thursday, March 28, 2024

rates expectations are still wrong, why crypto markets overreacted yesterday

“Courage is what it takes to stand up and speak. Courage is also what it takes to sit down and listen.” – Winston Churchill  ||

Hello everyone! I hope most of you get to enjoy a long weekend and that the sun shines and that your chocolate is still affordable.

For the Easter break, this newsletter will be taking Friday and Monday off, but I’ll publish the free weekly on Saturday.

**I had a great chat with Maggie Lake on the Real Vision show/podcast last night – link here.**

IN THIS NEWSLETTER:

• Rates expectations: another readjustment ahead

• A crypto overreaction to a court decision

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links, and (usually!) access to an audio read of the content. And there’s a free trial!

WHAT I’M WATCHING:

Rates expectations: another readjustment ahead

Regular readers will know that for much of last year and some of this, I fretted about the market’s mispricing of likely US rate cuts, especially when – not that long ago – it assigned a probability that the Fed’s projections would play out of precisely 0%. It was especially perplexing since the only reason the Fed would have to throw its official forecasts out the window and cut rates with abandon would be a sharp decline in economic activity coupled with an alarming spike in unemployment. I just could not see how that would be good for the market given valuations at the time.

Well, now the market and the Fed seem to be in alignment, with the market doing pretty much all the adjusting. After pricing in six rate cuts at the beginning of the year, bond traders seem to now believe the Federal Reserve that there will be three.

Only, now it looks like both the market and the Fed are wrong.

I’ll just come out and say it: I don’t think we’ll see three rate cuts in the US this year – maybe one or perhaps two, but three is a stretch.