On August 5, the financial markets experienced a sudden storm that was so shocking that it will go down in history.
The Nikkei 225 Index plunged 12.4% to 31,506 points, giving up all the gains for the year. The single-day drop was the largest in history, surpassing the Black Monday in 1987, but slightly less than the latter's 15%. South Korea's Seoul Composite Index fell 8.78%, and Taiwan's Weighted Index also plummeted 8.35%, both recording the worst single-day performance in history. The U.S. stock market was also affected, with Nasdaq futures plummeting 6.5% during the session, and Apple and Tesla's share prices in the Frankfurt market plummeted 10.8% and 11.6% respectively.
The core of the historic turmoil in the financial market is the unexpected interest rate hike by the Bank of Japan. On July 31, the Bank of Japan raised its policy rate to 0.25% for the first time, ending the era of negative interest rates. Previously, the cryptocurrency market was optimistic due to Trump's positive remarks, but the market took a sharp turn for the worse as soon as the news of the interest rate hike came out.
The Bank of Japan's slight interest rate hike triggered a chain reaction, and the arbitrage activities that have long taken advantage of the low borrowing costs of the yen suffered a heavy blow. The yen-dollar exchange rate soared by more than 12% in one month, and arbitrageurs sold their dollar assets to repay yen loans, resulting in a significant reduction in previous earnings or even losses. Investors favored yen arbitrage mainly because of loose foreign exchange controls and expectations that Japan would maintain low interest rates. However, this rate hike completely overturned market expectations, not only impacting arbitrage, but also severely damaging the Japanese stock market that relies on borrowing.
US recession
On the other hand, facing the sudden signs of recession in the US economy, the market did not seem to give any room for buffering, and directly threw the challenge to Fed Chairman Powell. The latest unemployment rate data not only triggered the Sam's rule that warns of the risk of economic recession, but also formed a double blow with the July non-farm employment growth data that was far below market expectations, which undoubtedly cast a heavy shadow on the outlook for the US economy. This series of negative news directly ignited the panic in the US stock market, which suffered a sharp drop at the opening.
The Sahm Rule is an economic indicator proposed by American economist Claudia Sahm to identify the beginning of an economic recession. The Sahm Rule determines whether a recession is likely to occur by comparing the current unemployment rate with the lowest unemployment rate in the past 12 months.
Cryptocurrency: You may be puzzled as to why the crypto market has not seen the expected rebound despite rising unemployment and weak non-farm payrolls, which should theoretically promote interest rate cuts and benefit risk assets? From a macro perspective, interest rate cuts can often stimulate the vitality of venture capital and drive the market up. But the key is that this effect is premised on the occurrence of interest rate cuts as a preventive measure before an economic recession.
For example, after the capital storm caused by the U.S. stock market circuit breaker in 2020, the Federal Reserve decisively cut interest rates by 100 basis points. This was a typical crisis response and passive interest rate cut aimed at stabilizing the shaky market. Although the external environment is far less severe than it was back then, and the warning of the Sam rule is not absolute, whether the U.S. economy can achieve a soft landing still depends on the direction of a series of subsequent data. As long as the unemployment rate does not rise sharply, the U.S. economy still has the possibility of a smooth transition, which is exactly the goal that the U.S. government is striving to achieve.
More than 200,000 people were liquidated, and two top English KOLs were liquidated for hundreds of millions
VIking made a net profit of 3 million U from 1,000 U at the beginning, and doubled his position by 3,000 times. Today, the extreme market situation has returned to zero. GCR, the number one English god, also lost 200 million US dollars. GCR has always been a long position. He suddenly locked all his tweets and nothing can be seen.
What should we do in the future?
In the current market environment, we should be highly cautious about leveraged trading and contract operations. As for contract trading, we need to be patient and wait for market trends to become clear in order to reduce potential risks.
Looking back, many friends have expressed strong interest in ETH spot. The market trough is often a good opportunity to layout, and risks often lurk after the price rises. August is a good time for you to layout and accumulate. From the fourth quarter of this year to around the Spring Festival next year, the market is expected to usher in a round of strong rising market, and then you will be grateful for the wise choice you made now.
With the Fed’s September rate cut expected, the market’s early volatility and adjustments are normal. After all, historical experience tells us that the sharp volatility before the rate cut in March 2020 was followed by an unprecedented rebound. Although history will not be completely replicated, similarities can always give us inspiration.
The idea of layout, the opportunity to buy at the bottom, please follow, leave more interactive messages, and I will share with you slowly after the big dream✌🏻️
