Monday, July 15, 2024

the difference a second can make, hidden signs of inflation, bitcoin and China’s Plenum

“There is no victory at bargain basement prices.” – Dwight D. Eisenhower ||

Hi all, I hope you’re doing well! What a weekend to be Spanish. (Ok, technically I’m not, but close enough.) Huge congratulations to Carlos Alcaraz for winning Wimbledon yet again, and of course to the Spanish national team for winning the Euros. Not bad at all. ⚽⚽

Today I was supposed to publish the monthly review of developments in tokenization – but, well, things happened over the weekend to push that down the priority list. To avoid making today’s newsletter ridiculously long, I’ll share it tomorrow.

Instead, I look at the market impact of the assassination attempt on former president Trump; at rumours China will “unban” Bitcoin this year; the Chinese Plenum; and at signs inflation may not be so licked after all.

I hope you find Crypto is Macro Now useful or informative or even maybe just fun for the music links – if so, would you mind sharing it with your friends and colleagues? ❤

IN THIS NEWSLETTER:

• The difference a second can make

• Hidden signs of inflation

• Bitcoin and China’s Plenum

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WHAT I’M WATCHING:

The difference a second can make

A lot of momentous things happened yesterday, some tragic, some momentously lucky, all shocking although they unfortunately shouldn’t be.

It is tragic that an innocent bystander lost his life and that others were seriously hurt. It is also tragic that a young man was so consumed with rage that he decided to try to murder a presidential candidate.

It is momentously lucky that he missed. The United States was less than an inch away from a wave of sectarian violence that would have had global repercussions, and while we don’t yet know what the longer-term consequences of yesterday’s drama will be, we can give thanks that white-hot anger was not given the trigger to spill over into armed outrage.   

The shock comes from the blatant reminder that this election started focusing on fear rather than a reasoned choice of policies a while ago. The shock also comes from the unbalanced reactions from all sides, and an eagerness to blame mainstream media that may be biased but that is also constrained by reporting norms that have not evolved along with new technologies – reporters are taught to never report pops as gunshots until they have official confirmation. I am normally loathe to defend editors at flagship publications, but split-second decisions clouded by fear of public and professional repercussions usually lead to weak impact, especially when competing against media platforms without similar constraints.

Of course, none of this is new. And yet, we were shocked.

Apart from giving a talented photographer the image of a generation, yesterday will mark a turning point in markets. Trump’s chances of winning the election in November have jumped, in part on sympathy but mainly due to his masterful handling of what must have been a terrifying moment, making him look decisive and strong against the increasingly obvious physical and mental weakness of his opponent.

(chart via Polymarket)

Today, markets around the world will be recalibrating what a Trump victory will look like.

We could see a walking back of rate cut expectations, as Trump’s promised tariffs and tax cuts could rekindle inflation, with a further yield bump coming from the likely widening of the budget deficit and the increased issuance of government debt. In early trading today, the benchmark 10-year treasury yield jumped, but has since settled back some and is still well below levels from a week ago.

(chart via TradingView)

We could also see increased interest in “haven” assets, as investors look for long-term stores of value that cannot be debased and that are not vulnerable to geopolitical conflict. BTC is climbing, briefly poking above $63,000 earlier today.

(chart via TradingView)

Yet gold, the traditional macro safe haven, has held steady, suggesting that the BTC move is perhaps more driven by a rekindling of risk sentiment as election uncertainty dissipates, and the likelihood of strong fiscal stimulus boosts expectations.

(chart via TradingView)

And there’s crypto policies. Trump is fully embracing crypto as part of his political platform, is reportedly planning to go ahead with his appearance at an upcoming Bitcoin conference, and is likely to appoint an SEC chief that will hopefully undo much of the damage inflicted by their predecessor. BTC could be climbing on expectations of a more favourable regulatory environment in the world’s largest financial market, that could encourage seriously large institutional investors to take more of an interest.

Four months is a long time in an election year, and there could still be more surprises ahead. President Biden’s health is sadly not going to improve between now and November, but yesterday’s drama will make any switch look like a desperate reaction rather than a strategy. The memefication of politics against a backdrop of deepening frustration gives even more weight to images of strength, which – whatever our ideology – we can’t deny we saw yesterday. Sentiment is shifting, fueled by both media attention and the redirection of donor funds. Going forward, markets will factor this in.

Meanwhile, it is unsettling to be reminded of how vulnerable history is to sheer luck.

Hidden signs of inflation

Friday gave us two key reads for the US inflation outlook: the Producer Price Index, and the results of the latest University of Michigan Consumer Survey.