Weekly Market Update: US CPI Dominates

Asset prices took a bit of a battering this week as the US CPI print was a mixed bag. Yes inflation was lower than April, however the Fed cut its forecast from 3 rate cuts this year to just 1. In response the US dollar got stronger, ETFs saw outflows and crypto prices fell.

We had plenty of crypto news this week, most centred around Layer 1’s. The ETH EFT is predicted to go live in July, Ripple is getting into Real World Assets and Cardano’s major upgrade is nearly upon us. ZK is also doing a major airdrop. 

In macro news, shipping costs are up again, and geopolitical economic tensions are becoming more obvious with some tit for tat tariff activity. 

In the US, CPI was down, however the FOMC is only forecasting 1 rate cut this year instead of 3. No bueno. 

In Europe they are imposing tariffs on Chinese EV’s, which evoked a swift response by the Chinese on European Pork imports. Farmers will be in the streets soon. Industrial production in the zone is down while Russian inflation is up, driven by labour shortages.

In Asia, Chinese consumer inflation was up a little but wholesale prices are way down, that is normally a leading inflation indicator. India’s industrial sector continues to shine while inflation looks to have settled. 

In regional news, Australia’s job market firmed up slightly. 

In New Zealand, the indicators have moved from flashing orange to red. Retail spending continues to fall, job adverts are way down and services PMI is ugly. Net migration is slowing, mainly due to residents voting with their feet. A ray of hope though, food prices appear to have stabilised. 

Last week we released exclusive new research with market insight experts Protocol Theory. This consumer research looked at what was happening with Kiwis now and with regards the coming wave of potential crypto investors during the next bull run. 

The results show a broad positive sentiment towards crypto as being part of the solution to solve current economic pressures for many. There are still challenges institutions need to overcome but it’s an encouraging sign. A great read for anyone interested in the bigger picture.

As I was writing this, originally it was going to be very much the same story as last week. However, the Fear & Greed index update shows a major change in sentiment we’ve seen in weeks. While still in the Greed territory, we’ve seen a reduction of 10 points.

Highlights this week: 

• Other than ETH most majors continue to show weakness in the range of 2 – 10%. 
• The ratio of buys to sell continues to see improvement, with the highest ratio of buys to sells seen since January this year.
• At the time of writing BTC is down 1.5% , with BNB and XRP following with 2% & 2.8% respectively. ETH down 0.3% with ⅔ of that being in the last 24hrs
• They nicely rhyming but otherwise unrelated duo of WAX and PAX were our best performing assets, up 0.2% & 0.5% today.
• For the last 7 days, Orion Protocol (ORN) has massively outperformed the market with 13.8% uplift. 
• Yield Guild Games (YGG) has followed most GameFi tokens losing 12.6% at time of writing.

View all top gainers: Visit the top gainers page to find out more.

Highlights from the crypto space

K33 research has highlighted that the 30 day correlation of BTC to the S&P 500 has become quite high in the last year.

However NYDIG has delved deeper, their conclusions is that it is global money supply (M2) and real interest rates that matter. 

Last week’s quick price dips lead to $270m in liquidated positions. Volatility and leverage are never great companions. Nervousness about the US CPI announcement led to $200m USD of outflows on the BTC ETFs, but we should note that they have pulled in $2.9bn in the last 2 weeks. 

The ETH ETfs are predicted to go live in early July this was reluctantly backed by Gary Gensler stating that ETH ETfs are likely to launch this (US) summer. He wouldn’t say if ETH is a commodity though. K33 modelled the impacts of the ETF. 👇

The world’s largest bank (ICBC) is calling Bitcoin digital gold and Ether digital oil. I think that is good? 

Layer 2 provider ZKSync is preparing to airdrop 21 bn ZK tokens. 

Other notable highlights from around the crypto space:

• MicroStrategy is buying another $500m BTC. Good time for them to buy! 
• Ripple is partnering with Archax to bring Real World Assets to life. Their court case with the SEC appears to be heading for a settlement. 
• Helio has launched a major upgrade to Solana Pay on Shopify
• Cardano is on track for its Voltaire upgrade this month. 
• A16 put out 10 truisms for crypto startups. Which sounds a lot like good advice for all businesses.
• @balajis put out an opinion that crypto is the money for the AI world. 
• The Turkish Lyria is now the 3rd highest traded currency in crypto. Inflation baby. 
• Terraform labs, of UST and Terra Luna infamy, has settled with the SEC for $4.7bn.

🌎 Macro news TLDR: …Higher for longer cools markets

Containerised shipping costs continue to increase, up another 2%. 

Argentina’s inflation has ‘cooled’ to only 276% pa. The monthly change was 4.2% in May. 

U.S. economic news

US CPI for May was flat for the month at 3.3% pa. Core CPI declined from 3.5% in April to 3.4%. 

The Fed kept rates steady and Fed Chairman Powell spoke after; the TLDR is they like the trend but want to see more evidence that inflation is under control before rate cuts are possible. 

The forward looking dot plot indicates 1 rate cut this year, not 3. The higher for longer mantra has led to a stronger US dollar which is acting as a headwind for risk assets. 

In this week’s employment data, unemployment increased a little, getting hopes up. 

Over in Europe….

The EU has imposed tariffs of up to 38% on Chinese EV’s by July. Apparently this is a reaction to the US sanctions which could lead to China dumping excess supply in Europe. Or it’s Mercantilism. China is not happy and, in an apparent response, opened a dumping probe into European Pork imports. 

Industrial production in Europe fell rather sharply in April to be down 3% year on year. And surprisingly, Q1 wages showed healthy growth at 5.1%. 

Russia’s inflation rate jumped to 8.3% due to the Ukraine conflict and labour shortages. 

And in Asia Pacific…

China’s CPI for May has inflation at 0.3% for the year, below April’s number. Producer prices (wholesale inflation) are way down at -1.4%. Industrial production fell slightly between April and May to be 5.6% annualised.

India’s industrial production rose 5% YoY, and Exports were up 9%. CPI eased to 4.75% in May, but food inflation is worryingly high at 8.7%. Japan’s BoJ held rates steady, but did confirm they are reducing their bond buying program. 

In Australia, their employment sector showed some strength with full time employment up.

In New Zealand, Net Migration for the year to April is 98,500. However a record number of NZ citizens have left in the last year. Retail card spending continues to fall, down 1.1% on April. Given the 100k net immigration gain, per capita retail spending is bleak. 

The BNZ-Seek employment report shows month on month falls in jobs advertised. Annually there are 30% less jobs being advertised. The BNZ PSI (services index) for May was… ugly; down another 3 points to 43. 

New orders are even lower, that should be ringing alarms. 

Good news though, food prices only rose 0.2% for the year to May, its lowest increase since 2018.

That’s a wrap for this week. 

Stay tuned for the next update.

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Catch-up on the previous market update.