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04 July 2022
- Cryptocurrency investors are going through rough times. Over the past three months, as many as 1,200 crypto coins have virtually ceased to exist, and hundreds more cryptocurrencies are now worth a fraction of their value compared to the beginning of the year. Staunch optimists call today’s slump a “crypto winter”, saying that the situation is not lost and there will surely be a recovery, while cryptocurrency detractors are openly talking about a second Tulip Mania, which is over after years of warnings.
- Realists then usually claim that only the strongest cryptocurrencies will survive today’s earthquake, much like good companies did after the dot.com bubble crash. In short, investors will choose currencies in the future based on their practicality, so many purely speculative projects probably already have their future figured out.
- The problem is the fall of some stablecoins, which were not considered purely speculative projects, and whose fall caused a shock to the market from which the crypto market still cannot fully recover.
- Growing concerns about the sector have prompted the Securities and Exchange Commission to reject an application to convert the Grayscale Bitcoin Trust – which manages $13 billion in assets – into the first spot ETF. The move would have potentially led to more interest from institutional investors, but instead turned into another fiasco. In response, Grayscale sued the SEC after the agency alleged that its product did not meet requirements “designed to prevent fraudulent and manipulative conduct… and to protect investors and the public interest.”
Indices
Stocks in the US did not build on the gains of the previous week, and despite Friday’s strengthening, they lost ground again. This made the S&P index the worst first half of the year since 1970. Investors’ concerns are triggered by poor earnings prospects from several companies and fears of rising inflation, which will lead to further monetary tightening by the Fed.
Investors in Europe are also worried about unchecked inflation and rate hikes by the ECB, which could lead to a recession. As a result, the pan-European STOXX Europe 600 Index ended the week 1.40% lower, Germany’s DAX Index pulled back 2.33%, France’s CAC 40 lost 2.34%, and the UK’s FTSE 100 Index declined 0.56%.
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US30 -1.28% |
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US100 -4.30% |
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US500 -2.21% |
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GER40 -2.33% |
Commodities
The commodities market is experiencing growing investor concern about a possible global recession, but on the other hand, risks associated with supply constraints are contributing to the persistent volatility. “The recession fears are the primary bearish factor that has capped the surge in oil prices. In addition, a strong USD also weakens broad commodity markets, including crude prices,” said CMC Markets analyst Tina Teng.
The gold price fell to a 7-month low last week after India, one of the biggest bullion consumers, raised its basic import duty on gold to 12.5% from 7.5%. Prices of most commodities today are moving more in line with supply and demand estimates, so the key driver of prices in the coming weeks will be macro data and US interest rates, which may lead to a strengthening US dollar.
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Gold -0.88% |
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Silver -5.87% |
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BRENT +2.32% |
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NATGAS -7.88% |
Forex
The US Dollar strengthened against most of its major counterparts over the past week and is again approaching its long-term high. The US Federal Reserve is raising rates at a record pace and intends to continue this trend for some time to come, and the US dollar is again playing the role of safe haven among investors. Rising inflation almost everywhere in the world and the end of cheap money from central banks are forcing investors to buy the dollar despite the threat that the Fed’s aggressive approach will eventually damage the US economy and plunge it into recession. On the other hand, the Australian dollar, seen as a bellwether of the global economy, has fallen to a two-year low over the past week.
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EUR/USD -1.16% |
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USD/JPY +0.05% |
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GBP/USD -1.52% |
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USD/CAD -0.08% |
Macro
After good data on durable goods orders, signaling that business spending plans remain strong despite high rates and inflation, the Conference Board’s consumer confidence index came in much lower than anticipated. Then on Wednesday, GDP data showed that the US economy contracted an annualized 1.6% per quarter in Q1 2022. PCE Price marked a downside surprise in inflation signals, and factory activity indicated continued expansion, but at the slowest pace since the summer of 2020.
Lower-than-expected German inflation on Wednesday was indeed positive news, but a rise in unemployment in Europe’s largest economy (the first increase in more than a year) and a rise in Eurozone inflation again suggested that a 0.5% rate hike in July was still on the table.
What to watch out for this week
- On Wednesday, we will learn from the FOMC Meeting Minutes how policymakers see interest rates evolving in the near future. A 0.75% rate hike is expected in July, but what happens in September is not so certain. On Thursday, the ECB will also publish the minutes of its June meeting, which plans its first rate hike since 2011 in July. Several Fed speakers are due to make appearances during the week, including New York Fed President John Williams, speaking Wednesday and again on Friday, plus Fed Governor Christopher Waller and St. Louis Fed President James Bullard.
- The Reserve Bank of Australia is also expected to raise rates by 0.5% on Wednesday. The RBA outperformed markets with its 0.5% hike a month ago, and investors expect a similar rate move this week. The bank is trying to fight inflation at 20-year highs, helped by a weak Australian dollar and soaring power and labour costs.
- The most anticipated report of the week will come on Friday when the nonfarm payrolls report arrives, showing how the labour market is performing. Economists expect 270,000 jobs to have been added in June, slowing from 390,000 in the previous month but still remaining robust; unemployment is expected to remain at 3.6%. Nevertheless, weaker-than-expected data may reinforce recession fears and strengthen the case for a less aggressive Fed approach to rate hikes.
- On Wednesday, JOLTs job openings data for May will be released, as well as ISM PMIs from the non-manufacturing and services sectors.
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