Three central banks are set to tighten monetary policy simultaneously for the first time since 2006, a combination that historically hits the most leveraged risk assets first. The European Central Bank has already raised its deposit rate to 2.50%, the Federal Reserve decides Wednesday with futures pricing near 90% odds of a hike, and the Bank of Japan decides Friday. In the 2006 template, the squeeze landed on May 10, and over the following month the S&P 500 fell 7.7%, Europe's Euro Stoxx fell 13.3%, Japan's TOPIX fell 16.5%, and emerging markets fell more than 20%, though the S&P 500 still finished 2006 up 15.79%. Bitcoin did not exist in 2006, but in August 2024 a Bank of Japan rate hike sent Japan's TOPIX down 12% in a single day and Bitcoin fell as much as 20%, placing Bitcoin on the emerging-market rung of that ladder, with Japanese stocks already down 8.4% in a month. This month the yen climbed 3.7% in three sessions while Bitcoin held above $79,000, breaking the 2024 pattern, after already falling 33% over the past year to trade at $77,871 as of this writing. US spot Bitcoin ETFs took in $3.52 billion in August, more than reversing the $5.30 billion that left over the previous seven months, and because that money is not borrowed in yen, a funding squeeze does not automatically force it out.
