All Eyes on Interest Rates

Rates In Focus. Western central banks are resorting to interest rate cuts for the first time in the post-COVID era, triggering investor optimism for the next large move up in crypto prices. What else happened this week in markets?

On Wednesday morning, the Bank of Canada (BOC) announced a reduction in its overnight interest rate target, a move immediately followed by identical policy actions from Europe, with both the European Central Bank and the Danish Nationalbank unveiling their own similar sized rate reductions on Thursday.

Although inflation continues to run slightly above policy makers’ long-term (and admittedly arbitrary derived) 2% target in Canada and Europe, central bankers cited increasing confidence that inflation will continue to ease and a better ability to project the future pathway of inflation in justifying their initial round of cuts.

The timeline for interest rate reductions from America’s Federal Reserve remains uncertain, but commencement of the cutting process in the global West signaled they could begin sooner than expected, particularly considering the close degrees of policy coordination historically exhibited between America and the cutting nations.

Falling global interest rates bolster dollar strength and could potentially further reignite inflationary pressures overseas; these allies are now likely pressuring U.S. monetary officials to implement their own cuts in the near future and would not have made the decision to cut without first securing a commitment from the Fed to do so in the near future.

Indeed, the combination of continually softening global economic data and these recent rate cuts did marginally increase the odds of American rate cuts at future meetings, invigorating crypto bulls with confirmation of this heavily anticipated bullish catalyst’s inevitable arrival.

Bitcoin gained nearly 7% on the week, managing to trade as high as $72k before rate cut optimism reversed on Friday, sending crypto prices sliding throughout the day as unexpectedly high headline employment statistics – which were deeply concerning under the surface – seemingly called into question whether central banks actually need to begin cutting rates.

Despite the reduction in short-term Canadian and European interest rates, longer duration global government bonds yields surged on Friday to suck the oxygen from risk markets.

Stealing the main stage this week in markets was undeniably GameStop, whose memestonk messiah Roaring Kitty marked his return to social media after a brief two week hiatus by tweeting a green Uno reverse card and disclosing his ownership of 12M shares in national GME exposure.

GME made new weekly highs in after hours trading on Thursday, reaching nearly $70 on speculation that Kitty could make a major move (i.e.; exercise his calls or roll them to a higher strike) in a YouTube stream scheduled for Friday at noon EST, but closed the week at just $28.

Unfortunately for bulls, the GameStop Corporation announced its sale of 75M additional shares during pre-market trading on Friday and Kitty’s much anticipated live stream yielded little.