Anndy Lian
Geopolitics, Fed policy, and Bitcoin: The trio shaping today’s markets
The global risk sentiment has found a foothold of stability, buoyed by a calming of geopolitical tensions and rising expectations that the Federal Reserve will lower interest rates later this year. This stability has rippled across asset classes, lifting US stock markets, tempering volatility, and even sparking renewed interest in cryptocurrencies like Bitcoin.
As a journalist tasked with unpacking this intricate scenario, I’ll explore how these factors interplay, what they mean for investors, and how upcoming data might sway the trajectory of markets in the near future.
The stabilisation of global risk sentiment
At the heart of the current market narrative is a perceptible shift in global risk sentiment. After months marked by uncertainty, driven in part by tariff disputes and geopolitical friction, the world seems to be exhaling, at least for now. This easing of tensions has allowed investors to step back from the edge of panic and refocus on growth opportunities. Meanwhile, the prospect of Federal Reserve interest rate cuts has injected a dose of optimism into the equation.
Lower interest rates typically signal cheaper borrowing costs, which can stimulate economic activity and make riskier assets, such as stocks, more appealing compared to the declining yields of bonds. Together, these forces have created a stabilising effect, one that’s visible in the performance of major financial indices and the behaviour of volatility gauges.
On Thursday, US stock markets closed on a high note, reflecting this newfound confidence. The Dow Jones Industrial Average climbed 0.94 per cent, the S&P 500 gained 0.80 per cent, and the Nasdaq Composite advanced 0.97 per cent. These gains weren’t a one-day fluke.
Asian equities opened higher on Friday, and US equity index futures hinted at a continuation of the upward trend when Wall Street reopened. This broad-based rally suggests that investors are embracing the narrative of reduced geopolitical risk and the promise of a more accommodative monetary policy from the Fed.
Perhaps the most telling indicator of this shift is the VIX, often dubbed the market’s “fear gauge.” After spiking to 52 in April amid tariff-fueled turmoil, a level that signaled heightened investor anxiety, the VIX has since retreated dramatically, sliding to 16.59. This decline signals a significant unwinding of fear, a return to a more measured risk appetite.
Historically, a VIX below 20 is associated with calmer markets, where investors are less preoccupied with hedging against sudden downturns and more inclined to pursue growth-oriented investments. The drop from 52 to 16.59 isn’t just a number. It’s a story of markets finding their footing after a stormy period.
Geopolitical concerns: From storm to calm
Geopolitical risks have long been a wild card in the financial world. Trade wars, political upheavals, and international conflicts can send shockwaves through markets, prompting sell-offs and spikes in volatility as investors scramble to assess the fallout.
April’s tariff disputes, for instance, were a textbook example of how quickly sentiment can sour when governments flex their economic muscle. The resulting uncertainty drove the VIX to its lofty peak, as markets braced for potential disruptions to global trade and economic growth.
But the past few weeks have painted a different picture. While the specifics of what’s driving this geopolitical détente aren’t fully detailed in the data, perhaps a cooling of trade rhetoric or diplomatic progress behind the scenes is at play; the effects are undeniable. Investors are no longer pricing in the same level of chaos, and that’s allowed risk assets to breathe.
It’s a reminder that markets don’t need perfect clarity to rally; they need the absence of immediate threats. This calm could be fleeting. Geopolitical risks are notoriously unpredictable, and a single headline could reignite volatility. For now, though, the respite is a welcome tailwind for risk sentiment.
Federal Reserve rate cuts: A beacon of hope
If geopolitical calm is the foundation, expectations of Federal Reserve interest rate cuts are the scaffolding propping up this stable sentiment. The Fed’s monetary policy is a linchpin for global markets, influencing everything from borrowing costs to currency values. When the Fed signals a dovish turn, lowering rates to spur growth, it’s like a green light for investors to take on more risk. That’s precisely what’s happening now, as markets increasingly price in rate cuts later this year.
This anticipation isn’t baseless speculation; it’s reflected in the bond market. On Thursday, US Treasury yields dipped, with the 10-year yield falling five basis points to 4.24 per cent and the two-year yield dropping six basis points to 3.71 per cent. Lower yields suggest that investors expect the Fed to ease policy, reducing the return on safe-haven assets like Treasuries and nudging capital toward equities and other growth-oriented investments.
Adding intrigue to the mix are renewed murmurs that President Donald Trump might be mulling a replacement for Fed Chair Jerome Powell. Such a shake-up could muddy the waters of monetary policy, but so far, the market’s reaction has been subdued, yields fell rather than spiked, indicating that investors are betting on rate cuts over political drama.
The US Dollar Index, meanwhile, slipped 0.54 per centto 97.15, a move that aligns with the narrative of rate cuts. A weaker dollar often boosts risk assets, especially in emerging markets, by easing the burden of dollar-denominated debt and lifting commodity prices.
Gold held steady at US$3,333 per ounce, a sign that investors aren’t rushing to safe havens, while Brent crude edged up 0.07 per cent to US$67.73 per barrel, buoyed perhaps by a slightly brighter demand outlook. These subtle shifts underscore how deeply Fed expectations permeate the financial ecosystem.
The PCE inflation data: A potential pivot point
While the present feels stable, the future hinges on data, specifically, the May reading of the personal consumption expenditures (PCE) price index, due Friday. As the Fed’s preferred inflation gauge, the PCE carries outsized weight in shaping policy decisions.
Analysts expect the headline PCE to rise 0.1 per cent month-on-month and 2.3 per cent year-on-year, with the core PCE (excluding volatile food and energy) ticking up 0.1 per cent month-on-month and 2.6 per cent year-on-year. These figures might seem incremental, but in the current environment, they’re anything but trivial.
If inflation surprises to the upside—say, climbing faster than anticipated—it could dampen hopes for rate cuts. A Fed wary of overheating might hold rates steady or even hint at tightening, which would likely dent risk sentiment and pressure equities.
Conversely, if the data indicates that inflation is cooling or holding steady, it strengthens the case for monetary easing, potentially fueling further gains in stocks and other risk assets. The market is leaning toward the latter scenario, given the recent behavior of yields and the dollar, but it’s a tightrope walk. Investors will dissect every decimal point of the PCE report, and their reactions could either cement this stability or unravel it.
Bitcoin’s bullish turn: A microcosm of risk appetite
Beyond traditional markets, the cryptocurrency space provides a fascinating lens on risk sentiment, with Bitcoin (BTC) taking centre stage. On Monday, Bitcoin surged 4.34 per cent to close at US$107,486, forming a bullish engulfing candlestick pattern that erased two days of bearish price action.
This technical signal, where a strong green candle fully engulfs the prior red candles, suggests a potential reversal, especially since Bitcoin held support above US$105,000 for two consecutive days. It’s a pattern that has caught the eye of traders, hinting at a shift in market structure and bolstering the cryptocurrency’s ongoing recovery.
But is this bullish setup reliable? To dig deeper, I’ve examined Bitcoin’s daily chart since January 2021, focusing on instances of the bullish engulfing pattern that meet specific criteria: the candle must engulf at least the previous two candles, emerge after a corrective phase, and be followed by a clear break of structure that confirms momentum.
The data reveals 19 such cases, with 15 leading to new local highs in subsequent days or weeks, a success rate of roughly 78 per cent. That’s a compelling statistic, suggesting a high likelihood that Bitcoin could continue to rise from here.
Yet, crypto markets are a different beast, driven as much by sentiment and speculation as by technicals. Despite the bullish signal, opinions remain split. Some view Bitcoin’s resilience as a sign of growing institutional adoption, while others warn of regulatory risks or macroeconomic headwinds. The upcoming PCE data could be a wildcard here, too, if inflation spikes and rate-cut odds fade, risk assets like Bitcoin might falter.
My take: Cautious optimism amid uncertainty
Stepping back, the current stability in global risk sentiment feels like a delicate balance, one I view with cautious optimism. The retreat of geopolitical storm clouds and the Fed’s dovish tilt have created a fertile ground for risk assets, as seen in the stock market’s gains, the VIX’s slide, and Bitcoin’s technical breakout.
The dip in Treasury yields and the dollar’s softening only reinforce this narrative. But stability isn’t the same as certainty, and the PCE data looms as a potential inflection point. A benign report could propel markets higher; a hot one could spark a rethink.
For investors, this is a moment to savor the calm while keeping an eye on the horizon. The interplay of geopolitics, monetary policy, and economic indicators will keep markets dynamic, if not downright unpredictable. As for me, I see a world where opportunity and risk coexist in equal measure, a sentiment that’s stable for now, but never static.
Source: https://e27.co/geopolitics-fed-policy-and-bitcoin-the-trio-shaping-todays-markets-20250627/
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