Wednesday, June 19, 2024

consumption, ETH news, central bank reserves, Red Sea tension, PicPay, China

“Moral courage is a rarer commodity than bravery in battle or great intelligence.” – Robert Kennedy  ||  

Hi everyone! I hope you’re all doing well! I was going to do a short newsletter today, as it’s a holiday for most of my readers and, well, I was hoping to go out and touch some grass. 🌱☀ But, as usual, there just ended up being a lot to talk about!

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IN THIS NEWSLETTER:

• More signs of a slowing consumer

• Good news for ETH

• Watch those central bank reserves

• Red Sea tension spills over

• PicPay’s IPO

• China vs US: always question the news

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WHAT I’M WATCHING:

More signs of a slowing consumer

After the University of Michigan’s latest consumer survey release last Friday showed a steep drop in expectations (the sentiment index came in at a seven-month low of 65.6 vs consensus forecast of 72 and a previous read of 69.1), yesterday’s US retail sales for May further underscored cooling consumption.

Core retail sales (ex-food and energy) dropped 0.1% month-on-month, while consensus forecast had pointed to a 0.2% increase. And April’s month-on-month change was revised down from a 0.2% increase to a 0.1% drop.

Headline retail sales grew by a muted 0.1% month-on-month, notably lower than the consensus forecast of 0.3%, while April’s change was revised down from 0% to -0.2%.

(chart via Bloomberg)

Retail spending accounts for a relatively small part of overall consumption (the bulk of which is on services), but it does suggest that the cooling signals we’ve been seeing over the past few weeks are impacting spending behaviour, which is likely to at some stage feed through to the jobs market: lower spending leads to lower revenues which leads to layoffs and lower spending, in a vicious downward circle.

In other words, the retail data adds to the case for rate cuts, even though Fed officials are pulling out all the stops to emphasize the message that they’re not coming any time soon. Over the past day or so, we’ve heard from at least seven Fed presidents and governors (these are the statements I’ve seen, there may be others) that the US central bank can afford to be patient, that there are no plans to cut just yet, maybe later this year, or maybe not until next year, etc.

As usual, the bond market decided to extrapolate the data rather than pay attention to Fed statements, and delivered a sharp drop in yields.

(chart via TradingView)

Strangely, BTC did not react in line. Normally, what’s good for bonds (prices go up, yields go down) is also good for BTC, as lower yields imply less competition for returns and more market liquidity. But not yesterday.

(chart via TradingView)

The crypto market still has sell pressure keeping a lid on prices. In a thread on X, crypto asset manager Travis Kling suggested that it could be coming from the US government, which a few weeks ago moved a big chunk of its BTC stash, sparking speculation it might soon start selling in the market. There’s no evidence of this yet, but something is keeping the price down.

Good news for ETH

The lack of an uptrend in ETH is especially perplexing. As far as we know, the US government has no big chunk of ETH to get rid of, there is no post-halving bump in miner selling to worry about, and the launch of the spot ETFs in the US is getting closer.