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Powell’s speech and the ISM PMI Agreement
We want to zoom in and review the broader macroeconomic picture and analyze some of the latest data released this week, which will have a heavy impact on market direction over the next few months.
After the speech by Jerome Powell of the Brookings Institution, it is clear that the markets are cautiously prepared to go higher with any story and possible fundamental scenario of the Federal Reserve. There is also hedging, short positions, options market dynamics and forced buying. It’s beyond our expertise to say exactly why the market is exploding with confusion over any given data point or Powell’s new speech. However, these types of events and market movements are almost always a sign of unhealthy trends and increased bear markets. Despite more talk from Powell that nothing new was actually said, the markets perceived his comment about the concern of raising the rate of speech as more “dovish”. However, if this is another bear market rally taking shape for the major indices, we look to be close to that rally turning around again.
What is also worrisome and expected to continue is the trend of economic contraction as indicated by data from the ISM manufacturing index (PMI). Today’s latest report shows a print of 49.0 below market expectations of 49.7. New orders are contracting, backlogs are contracting and prices are falling. According to all measures and survey responses, these are signs of softening demand, worsening economic conditions and the economy moving into more cautious territory. The ISM PMI data is heavily dependent on the less effective Chicago PMI data that only printed contract lows like 2000, 2008 and 2020. This is a sign of an economic recession that begins in the manufacturing sector.
What does economic correlation mean for financial markets? It’s usually bad news when a persistently contracting ISM PMI trend emerges below 50 and even below 40. It looks like we’re in the early stages of a big conversational trend that’s emerging: the market’s desperation phase.
The specific question for the relationship between bitcoin and macro is now: Was this event of collapse and capitulation of the industry-leverage enough to cut off the possibility and potential effects and effects of an equity bear market crash? Will bitcoin chart and form a bottom if equities follow the path of the previous bear market?
We have yet to see a real bounce in the stock market volatility that has always affected bitcoin. This year is a key part of our thesis that bitcoin will drive traditional equity markets to the downside.
The size of the long-term debt was, and still is, the biggest story in real terms.
Furthermore, what does this mean for asset valuations going forward?