Bitcoin and the crypto market benefit from macro factors

The crypto market is growing again thanks to good news related to macro. How long will the impact of this news last?

Main idea:

• China lowered many interest rates, reduced the required reserve ratio, and increased government spending with the aim of reviving the deflationary economy.
• Having an immediate positive impact on the stock market, other risky assets such as Bitcoin and crypto also benefit.
• Stable consumer spending indicators and a decrease in US unemployment benefit applications show signs that the FED is gradually controlling inflation.
• A stable and growing economy is a premise for growth for other risky assets like Bitcoin.

China is trying to stimulate the economy

Recently, the People’s Bank of China (PBC) announced a series of measures to stimulate the economy, which is facing many concerns related to long-term debt in key issues such as real estate, interest rates. Youth unemployment, access to capital…

This is considered the strongest economic stimulus package since Covid-19. According to the PBC governor, this move will bring 1,000 billion yuan (about 142 billion USD) of liquidity into the Chinese financial market in the long run. term. These impacts immediately caused the Chinese stock market to rise again and are expected to bring cash flow to other risky assets, including Bitcoin and the crypto market.

What made PBC decide to take such drastic action? Recent figures related to the Chinese economy show weakness, specifically:

1/ Real estate market is in serious crisis after 2021 with many scandals, especially the collapse of Evergrande Group. This event led to a serious decline of Chinese real estate businesses that issued high-yield bonds (HY real estate). The profit index from this group of businesses has decreased to a level comparable to the 2008 great crisis.

Read more: Looking back at the 2008 great economic crisis.

2/ China is also facing the longest period of deflation since 1999, with 5 consecutive quarters witnessing the economy in this situation. While most other countries raise interest rates to control inflation, China faces deflation.

3/ Unemployment rate in China returned to its peak of the 2019 period, even reaching its highest peak in the past decade. Production activities are limited, the construction industry faces difficulties due to the collapse of the real estate market, high unemployment rates and a sharp decrease in people’s shopping spending needs, leading to deflation.

To stimulate the economy against the above difficulties, PBC introduced a series of policies quite similar to the COVID period:

• Measures support the real estate market including a 0.5 percentage point reduction in average interest rates on home mortgages and a reduction in minimum down payment rates to 15% for all home types.
• Reduce the required reserve ratio by 0.5 percentage points At large banks, it is estimated to be equivalent to pushing out of the market 142 billion USD. At the same time, it was announced that it would reduce the 7-day repo interest rate by 0.2% (to 1.5%), reducing long-term lending interest rates.

• Announced 500 billion yuan swap program helps investment funds, insurance companies and brokers easily access capital to buy stocks.
• 300 billion yuan of cheap loans to support commercial banks in providing capital to organizations to carry out stock purchases and stock buybacks.

China sells US Government Bonds to finance activities to stimulate the economy, currently holding only about 780 billion USD, the lowest level in about 15 years.

So, China is not like printing Yuan out the economy that is Spend the USD in the reserve fundsimultaneously implementing the strategy of de-dollarization and stimulating economic growth.

Consumer spending is stable in the United States

Not only stopping at the news of the FED lowering interest rates by a historic 50 bps, the latest announcements on economic indicators also show some positive signs:

• Consumer spending increased 0.2% in August
• PCE price index (Personal Consumption Expenditure) increased by 0.1% over the previous month; increased 2.2% over the same period last year (2.3% lower than forecast)
• Core PCE inflation index increased 0.1% over the previous month, 2.7% over the same period last year (equal to forecast)
• The goods trade deficit narrowed 8.3% to 94.3 billion USD

PCE headline inflation – the Fed’s preferred inflation measure – was lower than expected, while core inflation rose, reflecting the impact of fuel and food price fluctuations. Nevertheless, the fact that these indicators have been lower or on par with forecasts is a sign positive in the Fed’s fight against inflation.

The US economy also received good news related to the job market. US unemployment claims fell by 4,000, reaching a four-month low of 218,000.

Many investors believe that the FED will likely continue to reduce interest rates by another 50 bps at its next meeting in November.

On October 4, the FED will continue to publish employment-related data such as Non-farm Payroll (the number of new jobs created in non-agricultural sectors of the economy) and Unemployment Rate (the number of new jobs created in non-agricultural sectors of the economy) and Unemployment Rate ( unemployment rate), these indicators will have an impact on the next decision in America’s fight against inflation.

Positive data on interest rates, required reserve ratios, consumer spending, inflation, and unemployment rates from two major powers, the United States and China, have quickly helped the stock market recover. . At the same time, other risk assets such as Bitcoin and crypto also benefit from this information.

Learn more: What is Nonfarm News? The impact of nonfarm news on the crypto market.