Last week saw a broad-based rally across global capital markets. U.S. equities continued their slow upward trend following rate cuts, maintaining intraday volatility. Cryptocurrencies surged significantly, driven by liquidity injections from both China and the U.S., with Bitcoin breaking through the 66,500 resistance level, surpassing its year-to-date downtrend. Multiple Asia-Pacific indices, including the Nikkei and Hong Kong’s Hang Seng, also experienced widespread gains.
We may be at the cusp of an epic bull market. Both China and the U.S. have initiated easing policies, and the recent gains merely reflect expectations being priced in. The real liquidity injection from these rate cuts has yet to fully enter the markets. Once liquidity flows more substantially into the equity markets, we believe this could trigger a bull market with momentum comparable to the post-2020 rally. In the short term, speculative trades are acceptable, but now may not be the best entry point for value investing. A technical breakout followed by a pullback on low volume would provide a more favorable entry opportunity.
One factor to watch is Japan’s monetary policy. Despite a slowdown in rate hikes, the market anticipates that the Bank of Japan may raise rates as early as December. As the yen’s carry trade unwinds, this could intersect with the liquidity-driven rally, potentially tempering the upward momentum. However, we still see considerable upside ahead.
Looking forward, several key economic reports are set to be released, primarily focused on employment and production data, alongside remarks from Fed Chair Jerome Powell. For now, recession trades dominate the logic behind U.S. equity markets, as recession risks have not fully dissipated. Therefore, employment and production data will be crucial. Powell is scheduled to speak at 1:55 a.m. on October 1. Based on his previous comments, his speech is likely to contain a mix of reassurance and market discipline, with limited impact on asset prices beyond some potential volatility during the event. Reducing leverage before his remarks could be prudent.
On October 1 at 10:00 p.m., the U.S. will release the Manufacturing PMI and JOLTS job openings data. The market expects the Manufacturing PMI to surpass the previous value of 47.6, but we believe it will continue the trend of stronger-than-expected services and weaker-than-expected manufacturing. As for JOLTS, market expectations are lower than the previous figure, and we anticipate that the actual data will align with these projections, as the effects of rate cuts have yet to fully materialize.
On October 2 and 4, the ADP non-farm employment and official non-farm payrolls data will be released. The general consensus is that both will exceed expectations, suggesting that the U.S. is moving further away from recession risks. Given the previous PMI and economic data, we believe non-farm employment will remain stable within a predictable range, with limited impact on asset prices. More importantly, the unemployment rate, set to be released on the evening of October 4, will be a critical metric for market participants and for the Fed’s future rate cut decisions. A 4.2% unemployment rate, matching the previous figure, would be ideal for the current market. A significantly higher rate could indicate recession risks dominating the market, while a much lower rate could reduce the likelihood of further aggressive rate cuts. Any deviation from expectations could lead to a pullback in asset prices.
Finally, we believe the current cryptocurrency rally may reach unprecedented heights, fueled by the joint monetary easing from China and the U.S. The previously projected Bitcoin targets of $80,000 or even $100,000 could be easily achieved. U.S. crypto ETFs are regaining traction as rate cuts commence, and bipartisan support for cryptocurrencies in the U.S. suggests a favorable regulatory environment, regardless of whether Harris or Trump wins the next presidential election. Moreover, former Deputy Minister of Finance Zhu Guangyao recently stated at a Tsinghua University forum that while the risks and negative impacts of cryptocurrencies should not be overlooked, their importance to the development of the digital economy is undeniable. If China adjusts its stance on cryptocurrencies, especially Bitcoin, their status could be further strengthened.
In the near term, as we’ve previously highlighted, it’s crucial to monitor potential black swan events, recession risks, and Japan’s rate hike trajectory. These are the biggest risks to asset prices going forward. Otherwise, we remain bullish on various assets over the coming months.