TLDR
- The Nikkei 225 stock index rebounded 11% after a 12% drop on Monday
- Bitcoin recovered to over $56,000 after falling below $50,000
- The crypto market recovery followed the stock market rebound
- US recession fears eased due to strong economic data
- Investors saw the dip as a buying opportunity, with inflows into crypto ETFs
The global financial markets staged a remarkable recovery on Tuesday, with both traditional stock markets and cryptocurrencies bouncing back from Monday’s steep losses.
Japan’s Nikkei 225 stock index led the charge, surging over 11% after suffering a 12% drop the previous day. This rebound was mirrored in the cryptocurrency market, with Bitcoin reclaiming the $56,000 level after briefly dipping below $50,000.
The dramatic turnaround in market sentiment was largely attributed to easing concerns about a potential US recession.
Strong economic data, particularly in the form of better-than-expected PMI (Purchasing Managers’ Index) numbers, helped alleviate fears of an economic downturn. The US futures market also showed signs of recovery, further boosting investor confidence.
In the crypto space, Bitcoin’s recovery was particularly noteworthy. The leading cryptocurrency saw a 13% increase from its recent low, climbing from $49,557 to over $56,000.
Markets are now pricing in a near 100% probability of a 50 basis point Sept. rate cut. I think that comfort caused a knee-jerk reaction to buy the dip. But that's too little, too late, especially when any hotter than expect #inflation data could lower those odds. Sell the rip!
— Peter Schiff (@PeterSchiff) August 5, 2024
This resurgence came after the Crypto Fear and Greed Index had entered the “Extreme Fear” zone for the first time in two years, indicating widespread market pessimism.
Despite the recent volatility, some investors viewed the market dip as a buying opportunity. On-chain data suggested that long-term investors were accumulating cryptocurrencies during the downturn.
Notably, US spot Ethereum ETFs reported net cash inflows of approximately $49 million. Matt Hougan, CIO of Bitwise, confirmed this trend, stating,
“We had net inflows into both our Bitcoin and Ethereum ETFs today. ETF investors are buying the dip.”
The recovery in both traditional and crypto markets has sparked discussions about the Federal Reserve’s next moves. While a 25 basis-point rate cut in September is widely anticipated, some analysts are speculating about the possibility of a more aggressive 50 basis-point cut.
The upcoming labor market data is expected to play a crucial role in shaping the Fed’s decision, which could have significant implications for market performance.
It’s worth noting that while the market recovery has been substantial, overall sentiment remains cautious. Sean McNulty of Arbelos Markets emphasized that investors are still wary of potential volatility.
The recent market turbulence has highlighted the interconnectedness of global financial markets, with events in one region quickly rippling across the world.
In Japan, the stock market’s recovery was particularly pronounced. The Nikkei 225 gained 3,217 points in a single day, its largest one-day rally in terms of points.
This came after Monday’s sharp decline, which was triggered by the Bank of Japan’s decision to raise interest rates for only the second time in 17 years. The rate hike strengthened the yen against the dollar, initially making Japanese stocks and exports more expensive for foreign investors.
