July 17 REX Wire Market Outlook

Temperatures might be hitting all-time highs in China, Europe, and the US, but economic data seems to be cooling. Following last week's CPI print, it looks like inflation is finally trending in the right direction for the US. The DXY is now at its lowest in 15 months, below 100 for the first time since early April 2022, providing a tail wind to risk assets.

Another 25 bps rate rise is all but fully priced in (96% confidence). However, when the FOMC meets on July 26, it's likely that this will be the last increase. Something significant would have to happen for the Fed to risk a further rate rise, risking damaging key areas of the financial markets for limited overall gain.

Right at this moment in time, the Fed appears to have achieved that rarest of beasts: A soft landing. While there's everything still to play for, real-terms wages are rising in the US, unemployment is low, and inflation appears to have been tamed. There have been no more bank failures. High rates have not broken anything else. These things take time, of course, but for now, it's all quiet on the Western Front.

The same can't be said of everywhere; in the UK, real-term wages are at 2007 levels. Germany, the EU's largest economy, is already in recession. The Turkish lira continues its slide even as Erdogan triples petrol taxes in an attempt to backfill the country's current account. And China is entering a "balance sheet recession" in which individuals and companies are focused on paying down debt accumulated over the boom years.

Crypto Consolidates

As the TradFi economy slowly settles into an uneasy peace, crypto appears to be doing the same but with a more positive tilt. The ruling by Judge Torres in the SEC's case against Ripple—which was a huge win for Ripple and the crypto world, no matter how the SEC tried to spin it—gave the markets a boost to a new local high.

That candle retraced the next day, with bitcoin returning to the $30-31k range in which it has now spent almost month, but these kinds of moves (up or down) often set precedents that are soon repeated with greater conviction.

The stage is certainly set, with the Ripple verdict undermining the SEC's authority over crypto assets. Moreover, there was a positive sign for Coinbase, also embroiled in a case with the SEC. US District Judge Katherine Failla gave her common-sense opinion that the SEC's decision to green-light Coinbase's IPO was indeed a tacit endorsement of their business practices, including offering staking products (which is what Coinbase say, but the SEC disputes). “It’s not crazy in the Failla parlance for Coinbase to think that what they were doing was okay because it was exactly what you let them do when they issued the S-1.”

BlackRock CEO Larry Fink has reiterated his bullish views on bitcoin, telling CNBC viewers that it transcends national currencies, and that "more and more" customers are asking the firm about it.

Grayscale's GBTC has seen its highest daily volumes of the year ($183 million on July 13), as institutional investors seek exposure to bitcoin in a landscape where few products are suited to their needs.

The blue touch paper has been lit, but there will be many twists and turns on the road of the next market cycle.

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