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September 11 REX Wire Market Outlook
The unexpected health of the US economy poses a threat to... the health of the US economy.
Just when you think the job is done, new figures are published. This time, a strong US jobless print at the end of last week has increased expectations that the Fed will raise rates one more time...
Initial jobless benefit claims fell by 13,000 to 216,000 for the week ending September 2, which is the lowest level since mid-February. The belief among economists was that new claims would rise by 2,000 to 230,000. Claims have now fallen for four weeks in a row.
It's good news for employees, of course, but more money being earned and spent means upward pressure on prices, and the one thing the Fed doesn't want is to see its progress on inflation go into reverse. Right now, the market is predicting that another rate rise on November 1 is more likely than not.
As a result, the dollar has strengthened even further. The DXY hit a six-month high on Friday at over 105. The CPI print this Wednesday will be hugely important.
Meanwhile, the Chinese Yuan fell to its weakest level since 2007, and risk assets (i.e. everything not directly related to the dollar) have come under pressure. Speaking of China, and its (direct and indirect) influence on the global economy: Weak demand has led Saudi Arabia and Russia to extend oil production cuts to the end of the year. Oil climbed to $90 in response, up 25% since its low earlier this year.
More expensive oil, of course, adds further inflationary pressure to countries which, unlike China, are struggling to bring prices down rather than up.
Crypto has predictably felt the weight of a stronger dollar, as well as more intrinsic headwinds. As analyst Brian Beamish comments, we'll now well into a correction from the 100% rally that took place between November last year and July this year. That could take some time to play out, with bearish sentiment potentially lasting until the end of 2023.
Optimism around a Bitcoin Spot ETF being approved any time soon has faded, leaving disillusionment, profit-taking, and risk mitigation. The market is currently paying more attention to reasons to sell than reasons to buy. Reports that FTX's crypto holdings will be sold as part of the bankruptcy proceedings are another source of concern.
A final decision will be made by the court on Wednesday—the same as the next CPI print. Expect a market reaction, even if it's not rational (the assets wouldn't be liquidated immediately, or dumped at spot, but more likely sold carefully over time or via OTC deals).
TL;DR this is a period in which bears are in the driving seat and will be paying attention to negative catalysts. An inflection point will come, as it always does. The question is when, and where.
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