Monday, April 29, 2024

PCE disappointment, crypto jitters, yen moves, Chinese hedging and more…

“If all the economists were laid end to end, they’d never reach a conclusion.” – George Bernard Shaw ||

Hello, everyone! I hope you all had a great weekend, and that the sun is shining where you are (or if clouds are in the way, that they’re the temporary kind).

A programming note: it’s Labour Day on Wednesday where I live, so this newsletter will be taking a break. The following day is also a holiday: Madrid Day, when we celebrate throwing out the French. I’ll publish the newsletter anyway, but it will be shorter than usual.

I have to pause the audio recordings for a few more days, apologies. I’m working on a solution.

If you find this newsletter useful, would you mind sharing it with your friends and colleagues? ❤

IN THIS NEWSLETTER:

• PCE disappointment and crypto jitters

• Sanctions, intervention and the Japanese yen

• Chinese hedging

• More spot ETFs

• The impact of sanctions

If you’re not a subscriber to the premium daily, I hope you’ll consider becoming one! You’ll get ~daily insight into the growing overlap between the crypto and macro landscapes, as well as some useful links. And there’s a free trial!

WHAT I’M WATCHING:

PCE disappointment and crypto jitters

Friday’s PCE data was not much of a surprise, as usual (the dataset is the same used for PPI and CPI), which the market bewilderingly took as a good sign. I suppose out of relief the results weren’t worse?

The market reaction

The yield on the benchmark US 10-year treasury dropped on the news, unwinding all of the previous day’s gains after the GDP shock. It bounced a little late on Friday, but has since continued down.

(chart via TradingView)

Stocks also seemed relieved, but this was probably more buoyed by good earnings reports from some of the large tech companies. Nasdaq jumped a whopping 2% on the day, with the S&P 500 up a more modest (but solid) 1%.

The crypto market is still wary of the macro mood, however, with BTC dropping on the news, bouncing, and then continuing down throughout the weekend, strangely moving with yields rather than in the usual opposite direction. Crypto market skittishness highlights how nervy the market is right now.

(chart via TradingView)

What the data said

Why is the PCE data not good, when it came in line with expectations?

First, if you take the PCE moves to two decimal places, the month-on-month increases were higher than expected.

(chart via Bloomberg)

This is relevant since decimal places matter when annualizing. The annualized three-month increase in core PCE (ex-energy and food), for example, is now back up to 4.4%.