August 7 REX Wire Market Outlook
It's a mixed picture across the board, as recent economic data shows strengths and weaknesses in the economy. Crypto, meanwhile, is eerily quiet...
It's been yet another week of mixed and inconclusive data, as the global economy struggles along, trying to decide whether to crumple or recover.
In the US (which, let's face it, drives much of the action), NFP increased, but less than forecast. Unemployment fell and hourly earnings came in above expectations. Demand for jobs is slowing, but the labor market is still pretty tight at the moment. The dollar dropped sharply as a result, falling a full point from 102.6 on Friday, before making up some ground on Monday.
In the UK, there's mixed inflation data. While it's coming down overall, it's still high (8%) and core inflation is particularly sticky. Last week the Bank of England raised rates by 0.25% to 5.25%, with two members of the nine-person committee wanting a larger increase. The Bank's actions have not been welcomed by a wide section of society, who believe they are failing in their core aim while punishing those who are already struggling.
Markets have reduced their estimates of the peak, which is now around 5.65%. 5%, incidentally, is the average rate of interest since the 17th century. It's the last decade that has been unusual, not our present circumstances. Meanwhile, the Reserve Bank of Australia surprised markets by keeping rates on hold.
Rate My Country
Last week, Fitch stripped the US of its AAA rating, downgrading it a notch to AA+. The explanation behind the decision referred to last year's drama, mentioning "repeated debt limit standoffs and last-minute resolutions" plus the "deterioration in standards of governance" that it says have occurred over the last 20 years. Fitch also pointed to growing government debt, which stands at 113% of GDP. The median for triple-A rated countries is around 39%, and 45% for those rated AA.
It's worth remembering that Standard and Poor's downgraded the US in 2011, and it didn't prove a disaster. It's also worth remembering that ratings agencies designated toxic securities as AAA in the run-up to the subprime financial crisis, so opinions on their authority vary.
The news may have helped push up bond yields, though, along with the Treasury's plans to swamp the market with new issuance. 30-year Treasury yields rose to over 4.2%. Meanwhile, stonks adjusted to those higher yields by taking a leg down.
Bitcoin Remains Stagnant
Crypto has had a lackluster few weeks. Bitcoin closed last week just above $29,000, around $250 lower than where it started—minuscule volatility of less than 1%. The last six weeks have been a period of exceptional, almost unheard-of, stability. It can't and won't last, of course; the market is just winding up for its next big move, which will depend on the nature of the catalyst that sparks it.
Bitcoin Dominance has risen half a percent since last week, indicating that alts, too, are stagnant. They have failed to build on the slight gains they made when bitcoin stabilized. There is, to be clear, precisely zero sign of anything that could be considered Alts Season.
There are plenty of possible catalysts, good and bad. At this point in the cycle, the market "should" select one of the bullish ones to continue its trend (such as progress on the ETF, the SEC's case against Coinbase being thrown out of court, Gary Gensler being arrested for insider trading).
But with bitcoin, nothing is ever predictable.
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