US stocks edged lower after a wrath of weakening economic data and after Macy’s wasn’t that pessimistic about the consumer. Financial markets will remain in choppy waters until Fed Chair Powell’s Jackson Hole speech on Friday. He may struggle to convince markets that he is comfortable with tightening policy and triggering a recession. The economy is clearly slowing but it is still too early for the Fed to signal that they will be less aggressive with tightening policy.
The August flash PMI readings came in well below market expectations, which has revived US growth concerns. Manufacturing activity weekend more than expected, while the services PMI plunged. The US economy is clearly slowing, but today’s PMI data suggests it could be weakening a lot faster than anyone was expecting. The services measure fell to 44.1, the worst reading since May 2020. The employment component also weakened but still remains an expansion territory. The labor market still looks strong but Corporate America seems positioned for layoffs early next year.
New home sales data plunged in July, confirming the cooling of the housing market. A surge in supply will keep the downward trajectory for all housing data going forward. The housing market will continue to cool as the consumer will continue to weaken, borrowing costs will remain elevated, and after inventories reached the highest levels since April 2009.
Bitcoin’s correlation to US equities remains elevated and that probably won’t change for a while. Bitcoin is rebounding slightly alongside US equities after US data raises the chances Fed Chair Powell may deliver a dovish surprise. Big Wall Street money was targeting a major move lower for stocks and that has been weighing on bitcoin.
Given the ugly economic data that has been dropping, there is a chance that if we get a dovish Powell, the crypto winter could be over. The base case for Jackson Hole still leans towards the hawkish side, as Powell will signal the Fed can continue to tighten even as the economy weakens.
If bitcoin holds the $20,000 level this week, that would be very constructive and could open the door to test the $25,000 region.
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