MARKET COMPASS
Trade War Agenda
The main agenda item driving asset prices in global markets continues to be the “trade wars”. After Trump’s 90-day postponement of higher tariffs, we saw that the issue has moved away from being a dynamic that consistently drives prices down. This confirmed our expectations that the President would try to keep his hand strong before coming to the negotiating table. But it’s worth noting that Donald Trump is playing hardball in reality.
Talks with Japan and Italy suggest that Trump will continue to use tariffs as a negotiating tool in trade wars. He seems willing to shake hands with those willing to sit at the table. On the other hand, we believe that the real target of tariffs is China and that the trade wars cannot be considered resolved without a solution between the world’s two largest economies. The President’s recent comments have been that he is not in Favor of further tariff increases for China and this could be a good sign for possible future talks.
Macro Agenda
We observe that developments on trade wars have largely occupied the agenda of the markets. However, the monetary policy course of the US Federal Reserve (FED) and the macro dynamics in the world’s largest economy remain under the close scrutiny of investors. The most recent development on this front was FED Chairman Powell’s remarks, which signaled that the Fed would not be in a hurry to cut interest rates. Following this assessment, Powell faced criticism from Trump and said that interest rates should be cut quickly. The FED will continue to monitor the data. So will the markets… We will also be watching the speeches of many Federal Open Market Committee (FOMC) officials at various events next week.
Flash Manufacturing PMI is a leading indicator of economic health. Businesses react quickly to market conditions and purchasing managers have perhaps the most up-to-date and relevant estimate of the company’s outlook for the economy. The Purchasing Managers’ Index (PMI) is a survey of nearly 800 purchasing managers that asks respondents to assess the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries and inventories. Above 50.0 indicates that the sector is expanding, while below 50.0 indicates contraction. There are two versions of this report, Flash and Final, published about a week apart. The Flash version is released on a preliminary and monthly basis, approximately 3 weeks into the current month. A below-forecast reading is expected to produce a positive result for crypto assets.
US Durable Goods Orders shows the change in the total value of new purchase orders placed with manufacturers for durable goods. This data is usually revised with the Factory Orders report released about a week later and “Durable Goods” are defined as products that last longer than 3 years, such as automobiles, computers, appliances and airplanes. It is a leading indicator of production and gives a preliminary indication of the vitality of the economy. Core Durable Goods Orders shows the change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items. This dataset has been shown to have complex effects on the value of digital assets.
Digital Compass
We consider it a very important development that a strategic crypto reserve is on the agenda in the US, the locomotive of the world economy. However, the fact that the markets had already priced in the “best case scenario” before and after the US elections, combined with the “less than perfect” news on this issue, put pressure on digital assets. We continue to keep the strategic reserve issue in our equation as a positive variable for cryptocurrencies in the long run. On the other hand, we think that we may continue to see pressure in the medium term with the lack of new news flow that will create enthusiasm in the crypto market and further concerns in global markets that global economic activity may slow down, especially with Trump’s tariffs. In the short term, markets will continue to be sensitive to macro indicators and developments regarding tariffs.
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INFORMATION
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