Rising Interest Rates Prompt Concerns as Crypto Market Retreats

Key Points:

Risk markets declined on Thursday even as the White House withdrew its recent tariff threat.
The term stagflation resurfaced as interest rates increase alongside economic slow-down.
The U.S. jobs report tomorrow is expected to be particularly significant.

The latest reversal in tariff threats by President Trump failed to yield the expected positive impact on risk markets halfway through the U.S. trading day on Thursday. The stock market initially reacted positively after dropping sharply, with Bitcoin (BTC) surging over $91,000 after Commerce Secretary Howard Lutnick indicated that Trump would exclude Mexico from a new 25% tariff related to a prior trade agreement. This softened stance was later confirmed by a tweet from Trump.

However, this positive momentum quickly faded, with the Nasdaq hitting its lowest point of the session down by 2.3%. Bitcoin has since retraced to approximately $88,500, reflecting a near 1% decrease over the past 24 hours.

Emerging Stagflation Concerns

Amidst the ongoing fluctuations in the news from Washington D.C., a significant rise in interest rates throughout the developed world has occurred. For instance, Germany recently experienced one of its most severe bond crashes, with its 10-year Bund yield soaring over 40 basis points to 2.83% this week.

In Japan, yields on long-term Japanese Government Bonds (JGB) increased by 6 basis points to 1.51%, doubling from levels recorded six months prior. Meanwhile, the U.S. 10-year Treasury yield, which had previously fallen approximately 70 basis points since Trump’s inauguration, surged over 20 basis points in just 48 hours, reaching 4.30%.

Quinn Thompson of Lekker Capital expressed concern over these rising yields occurring in a slowing growth environment. “We are experiencing the exact definition of stagflation, which has historically had a negative impact on risk assets,” he noted.

Upcoming U.S. Jobs Report

The substantial increase in interest rates has elevated expectations surrounding the upcoming February U.S. Nonfarm Payrolls Report, set for release Friday morning. Economists anticipate a rise in payrolls to 160,000 compared to 143,000 in January, with the unemployment rate expected to remain steady at 4%. A robust jobs report could prompt an uptick in rates and exert additional downward pressure on risk markets, including cryptocurrencies.