June 5 REX Wire Market Outlook

Unexpectedly strong jobs data has put a fire under risk assets - except for crypto, which has been range bound for a month.

June 5 REX Wire Market Outlook

Two significant developments last week have shifted market sentiment in favor of risk.

The first is the resolution of the debt ceiling drama. Although the deal has attracted criticism from both sides, markets like certainty. With the bill now signed into law, the US is able to issue more debt and avoid a catastrophic default. While the odds of that occurring were always low, the market was pricing in some chance of it happening, which has now been removed.

The second development is the release of US jobs data (non-farm payroll) which came in substantially higher than forecast. The market had expected the US to add 190,000 jobs last month, with a lower limit of 100,000. In fact, data showed the economy added 339,000 jobs in May, and figures for the previous two months were updated by +93,000, demonstrating strong job creation.

With jobs data coming in so far above consensus, stock markets and the dollar soared: The economy is more robust than previously thought. However, the picture wasn't uniformly positive, as unemployment did rise slightly, and wage growth slowed—placing the Federal Reserve in a difficult position on whether to raise interest rates again or pause on June 14. The market is currently expecting rates to stay the same with almost 80% confidence (with 21.8% chance of a 0.25% rise), but as the CME's historical data shows, that can change literally overnight.

CME chart for interest rate expectations.
Expectations of a rise to 525-500 basis points have evolved rapidly, even in the last few weeks.

Crypto: Still Sideways

Despite these tailwinds, bitcoin is still range bound. Regulatory uncertainties (at least in the US) and continued hacks, plus the fact that BTC is already up 70% from its bear market low, make it less attractive than other opportunities.

Tech stocks are riding high, with most of the S&P's recent gains being attributable to just a few large tech corporations, buoyed by the AI narrative—which has not fed through to crypto.

BTC has traded in a $1,500 range between $26,300 and $27,800 for the last four weeks—remarkably low volatility for crypto, and given the macro backdrop. Once again the 200-week moving average has held as support.

In the previous two market cycles, it took bitcoin almost two years to reclaim its prior all-time high from the bear market low. To date, it has only been six months since the low, and five months since the breakout. If this is a bull market (and the macro picture still has the capacity to throw a spanner in the works), it's still in its early stages. Analysts are divided on whether bitcoin's next move will be significantly higher or lower, although the longer the period of consolidation, the less likely another leg down becomes.

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