SPEECH OF POWELL AND RENDERING ISM PMI
We want to enlarge our view, review the bigger macroeconomic picture, and examine some of the most recent information that was released this week and will have a significant impact on the direction of the market in the next months.
Following Jerome Powell’s address at the Brooking Institution, it is evident that markets are eager to advance higher with any potential Federal Reserve narrative and pivot scenario.
There is excessive hedging, short squeezes, dynamics of the options market, and forced purchasing. We are unable to precisely explain why the markets are seeing such extreme volatility in response to any particular data point or fresh Powell speech.
But these kinds of occurrences and market changes have almost always been indicators of unwholesome and excessively volatile swings in bear markets. Markets interpreted Powell’s speech as more “dovish” because of his comments on the danger of excessive rate hikes, despite the fact that he only spoke more generally and stated nothing new. However, if the major indices are undergoing another negative market bounce.
The ISM manufacturing index figures reveal a tendency of economic shrinkage, which is equally alarming and is predicted to continue (PMI). The most recent report today has a print of 49.0, which is below the market’s anticipated reading of 49.7. Prices are falling as well as the number of new orders and backlog of orders.
These are the indications that demand is weakening, conditions are deteriorating, and the economy is entering a more cautious phase, according to all measurements and survey replies.
The Chicago PMI data, which recently printed contraction lows akin to 2000, 2008, and 2020, but which has less significance, shows a strong correlation with the ISM PMI data. This indicates that a recession in the economy is beginning in the manufacturing sector.
What does a slowdown in the economy entail for the financial markets? ISM PMI readings below 50 or even in the 40s indicate a continuous contraction trend, which is normally bad news. We appear to be in the early phases of a broader contraction trend, or the market’s desperation stage.
Was this industry-leverage wipeout and capitulation event enough selling to reduce the likelihood and effects of an equity bear market meltdown? This is the specific question for the bitcoin and macro relationship at this time. If stocks decline in a manner akin to previous bear markets, would bitcoin flatten and establish a bottom?
The volatility of the stock market, which has always affected bitcoin, has yet to really blow over. Our primary premise for this year has been that bitcoin will decline in line with regular equity markets.
The key story in this situation was and remains the size of the long-term debt in real terms.
What does this suggest for future asset valuations as well?