Recent economic data from the US paint a picture of a slowing economy under pressure from high interest rates, trade wars, and geopolitical tensions. For investors, including those in the cryptocurrency market, this is a time of increased caution and strategy reassessment.
On Tuesday, financial markets faced a wave of negative news that, like a cold shower, cooled the ardor of optimists. Data points to a clear slowdown in key sectors of the economy, and the growth of geopolitical risks only adds fuel to the fire. Let's analyze what specific signals the economy is sending us and what this means for the markets.
A blow to the main engine — the consumer
The main and most alarming signal came from the consumer sector, which is the backbone of the US economy. Retail sales in May plummeted by 0.9% compared to the previous month, which was significantly worse than analysts' forecasts, which expected a decline of 0.7%. This is the sharpest decline in the last four months.
Consumers have begun to tighten their belts, cutting back on spending for major purchases: sales at auto dealers and parts fell by 3.5%, while sales of building materials dropped by 2.7%. This trend is exacerbated by a deep depression in the housing market. The builder sentiment index (NAHB) fell to 32 points — the lowest level since December 2022. The high cost of mortgages due to the Fed's strict policy has made buying a home an unattainable dream for many, directly impacting the construction sector and related industries.
Industry is stagnating, and markets are falling
The industrial sector also failed to please investors. Contrary to expectations of a 0.1% growth, industrial production unexpectedly declined by 0.2% in May. The manufacturing sector, which accounts for the lion's share of industry, showed minimal growth of 0.1%, falling short of forecasts. Overall capacity utilization fell to 77.4%, which is 2.2 percentage points below the long-term average. This indicates that companies are not rushing to increase output in the face of weak demand and uncertainty.
Against this backdrop, the US stock market turned red, with major indices losing about 0.3-0.5%. Investors are frightened not only by weak economic indicators but also by President Trump's statements about a possible escalation of the conflict in the Middle East. In such moments, capital traditionally flows from risky assets, such as stocks, to safer havens, for example, US government bonds. As a result, the yield on 10-year Treasury bonds fell to 4.4%.
Another worrying factor is trade policy. Despite the overall slowdown, import prices in May did not decrease as expected. This may indicate that foreign companies are not rushing to lower prices to offset the effect of American tariffs for consumers. As a result, inflationary pressure may prove to be more persistent than desired.
Conclusions for the investor: a time for caution
What does all this mean in practice?
Wednesday "Risk-Off": The current situation is a classic example of a "risk-off" scenario, where market participants avoid risk. During these periods, volatile assets, including tech stocks and cryptocurrencies, may experience additional pressure.
A tough task for the Fed: The Federal Reserve System faces a daunting dilemma. On one hand, weak data and the threat of recession call for easing monetary policy and lowering interest rates to support the economy. On the other hand, persistent inflationary risks fueled by trade tariffs limit the room for maneuver.
Attention to the regulator: The attention of the whole world is now focused on the Fed. The upcoming decisions of the regulator regarding interest rates and its comments on future policy will be a key guideline for the markets in the second half of the year and will determine how the situation will develop.
