Friday, July 14, 2023

Ripple impact, economic orthodoxy, ETF countdown, economic orthodoxy, dollar weakness and more…

“It does not do to leave a live dragon out of your calculations, if you live near him.” ― J.R.R. Tolkien ||

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WHAT I’M WATCHING

Are tokens securities? No surprise, it depends. Yesterday’s long-awaited ruling on the SEC vs Ripple case shed light on legislative thinking, but raised even more questions. It does seem like net good news for the crypto ecosystem, but there could still be some setbacks ahead. More on this below.

Global slowdown. Hints that the global economy is screeching to a halt are becoming louder. Earlier this week we saw Chinese exports drop 12.4% in June year-on-year, with exports to the US down 24%, the steepest drop since the beginning of the pandemic. Yesterday, May industrial production data for the Eurozone showed a contraction of 2.2% vs the same period a year earlier. US CPI for May grew at the slowest pace since 2021, and yesterday’s PPI index delivered the lowest increase since 2020. Yesterday, Conagra’s CEO said on an earnings call that US consumers are cutting back on groceries. US employment remains bewilderingly resilient, however – yesterday’s jobless claims came in under expectations. Bottom line, things look bleak, but investors still have reason for optimism, which serves to delay the approaching adjustment.

Bank earnings. Today we get Q2 earnings from Citi, Wells Fargo and JPMorgan. It’s not so much the backward-looking data that will impact markets (although surprises to the upside or downside could shed light on how misplaced recession expectations have been) as it is the comments from bank officials as to what could be ahead. Remember that the health of the banking sector is one of the things that could “break” as a result of rate over-tightening – executives are likely to play this down, but I’ll be listening for hints as to lending appetite, commercial real estate portfolios, deposit growth and whether we could see more consolidation in the sector.

Dollar weakness. Yesterday, the DXY index hit its lowest point in over a year. Normally, BTC and the dollar move inversely, in part because of the denominator effect and in part for the monetary liquidity signal (a lower dollar gives dollar debt holders more breathing room, and suggests a lack of market stress). The push seems to be lagging, though, and BTC’s move yesterday appears to be more attributable to the overall market boost from the Ripple ruling. Strange.