#TradeWarEases #TrumpTariffs #Fed
The last days have brought a whole heap of macroeconomic news from the U.S., and, to be frank, not all of them have caused a storm of enthusiasm among investors. Rather, the opposite – it made many scratch their heads and wonder: what is happening with the largest economy in the world and how will it affect all of us, including the crypto market?
Key points worthy of attention:
The labor market is sending alarming signals (but it's not all so straightforward).
The service sector unexpectedly slowed down (but there are other opinions).
Inflationary pressure does not relent (thanks to tariffs?).
Market reaction: government bond yields down, dollar weakens, stocks in contemplation.
The Fed is at a crossroads: cut rates or wait?
Let's break down each point in more detail, as we love to do – with numbers, facts, and a pinch of analytical humor.
1. Labor Market: "The Swan, the Crab, and the Pike" of American Employment
Let's start with the hottest topic – the employment data. The ADP report showed that the private sector created only 37 thousand jobs in May. To put it mildly, that's sparse. Analysts expected a figure around 115 thousand, so the miss is significant. Moreover, this is the weakest monthly increase in almost two years! A picture worthy of a pessimistic artist. The service sector added 36 thousand, mainly due to leisure and hospitality, while professional and business services, education, and healthcare went negative. Even manufacturing showed a modest decline of 2 thousand jobs.
Factors influencing: A slowdown in hiring after a strong start to the year; perhaps companies have become more cautious amid overall uncertainty.
Conclusion: A clear signal of cooling in the labor market. If this is not a statistical anomaly, the economy is indeed losing steam.
But before we could lament, JOLTS data (number of job openings) for April arrived, unexpectedly rising to 7.39 million, exceeding forecasts. It creates an economic paradox: few jobs are being created, but there seem to be plenty of vacancies. Perhaps the issue is in the mismatch of skills or that companies are keeping vacancies open but are not in a hurry to hire.
Conclusion (clarified): The labor market is heterogeneous. There are signs of weakness, but also some areas of resilience. All eyes are now on Friday's non-farm payroll report – it should provide more clarity.
2. Service Sector: ISM says "stop," S&P Global says "full speed ahead!"
Another surprise came from the ISM Services PMI (Institute for Supply Management's services business activity index). In May, it slipped into contraction territory (below 50 points), showing 49.9 points. This is the first decline in almost a year! Production has stalled, new orders and inventories have decreased, and unfulfilled orders are decreasing even faster. Respondents complain about uncertainty due to tariffs and are trying to postpone or minimize orders.
Factors influencing: Tariff uncertainty, possible decline in consumer demand.
Conclusion: A warning bell for the sector that is the main driving force of the American economy.
However, to ensure that life is not too sweet, the alternative index S&P Global US Services PMI for the same May showed growth to 53.7 points, signaling confident expansion. Companies reported an increase in customer spending, especially domestically. However, foreign demand continues to decline due to concerns over tariffs and U.S. trade policy.
Conclusion (again clarified): Two leading indicators show diametrically opposite pictures. Perhaps the methodologies differ, or the respondent samples are different. But such discord clearly does not add confidence. The composite PMI from S&P Global has also risen, indicating an overall improvement in business activity despite problems in manufacturing.
3. Inflation is not sleeping: do tariffs stoke the fire?
Where opinions converge is in the assessment of price pressure. The price component in the ISM Services PMI report jumped to its highest level since November 2022 (68.7). S&P Global also reports the highest level of cost inflation since June 2023, causing firms to raise selling prices at the fastest pace since August 2022.
Factors influencing: Wage growth, rising supplier prices, and of course, the infamous tariffs. The new 50% tariffs on steel and aluminum imports, which have come into effect, are clearly not conducive to lowering prices.
Conclusion: Inflation remains a headache. If the economy begins to slow down while high price pressure persists, this is a direct path to stagflation – a highly unpleasant scenario.
4. Market Reaction: Safe Haven of Bonds and Dollar Nervousness
How did the markets react to this cocktail of conflicting data?
The yield on 10-year U.S. Treasury bonds fell about 9 basis points, dropping below 4.4% – the lowest level in about a month. Investors, fearing an economic slowdown, are seeking refuge in safe assets and are also betting on a possible rate cut by the Fed.
The U.S. dollar index weakened, nearing a six-week low. Weak economic data and the prospect of rate cuts make the American currency less attractive.
The U.S. stock market showed modest growth (Dow, S&P 500, Nasdaq gained about 0.3%), but volatility is likely to persist. Investors are trying to digest fresh data and are watching the trade battles. By the way, a fun fact: Nvidia surpassed Microsoft, becoming the most valuable company in the world. Apparently, the demand for AI chips is currently stronger than economic woes.
5. The Fed is at a crossroads: "To execute or not to execute" (the rate)
All these economic perturbations directly affect expectations regarding the actions of the Federal Reserve System. Weak data strengthen the arguments for easing monetary policy. President Trump has again urged the Fed to cut rates.
However, Fed officials remain cautious for now. They point to ongoing uncertainty in trade relations and the global economic situation. Markets are currently pricing in two rate cuts in 2025, with the first being most likely in October.
Factors influencing the Fed's decision: Inflation data (especially PCE – the preferred Fed indicator), the labor market situation (Friday's Nonfarm Payrolls will be key), global economic conditions, trade policy.
Conclusion: The Fed is in a difficult position. On one hand, there are signs of an economic slowdown that require stimulus measures. On the other, inflation is still high, and premature rate cuts could reignite it. It's like walking a tightrope over a chasm – a step left or right can have serious consequences.
What does all this mean for us, crypto enthusiasts?
It seems, where is the American macroeconomy, and where are our beloved bitcoins and altcoins? However, there is a connection, and quite a direct one.
Expectations for Fed rates: If the Fed starts cutting rates, it's usually positive for risk assets, including cryptocurrency. Cheaper money seeks higher returns, and some of this liquidity may flow into the crypto market.
Dynamics of the U.S. dollar: A weakening dollar often correlates with rising prices of Bitcoin and other cryptocurrencies denominated in dollars. Additionally, during periods of weakening major fiat currencies, cryptocurrencies may be seen as an alternative store of value.
Overall economic uncertainty: On one hand, an economic downturn could reduce risk appetite. On the other hand, if traditional markets begin to panic, some investors may turn their attention to crypto assets in search of diversification or protection against inflation (the very narrative of "digital gold").
Volatility: The current mixed picture of data may lead to increased volatility in traditional markets, which, as we know, easily spills over into the crypto market.
In summary: The American economy continues to send mixed signals. There are clear signs of cooling, especially in the labor market and in certain segments of the service sector, which fuels expectations for rate cuts by the Fed. However, inflationary pressure persists, and trade wars and tariffs continue to loom over the global economy like a Damocles sword.
For the crypto market, this means a period of heightened attention to macroeconomic indicators and Fed statements. Friday's U.S. employment report could be the next important trigger. So, as they say, keep your finger on the pulse and don't forget about risk management. After all, in the financial markets, as in a good detective story, the most interesting details often lie hidden.
Good luck in the markets, and see you again on the pages of Binance!
