In what seems to be a choppy market, new economic data is dropping and somewhat muddying the picture. At the moment, guys, the macro is becoming increasingly important again. We're at a real inflection point, and crypto, in general, needs the data to go our way. It's vital that we're on top of this and get it right.

Unfortunately, crypto is trading closely to risk assets again, so the macro really does govern us; hence, it is pivotal that we get this right. 

Lastly, for those unsure about just how important the macro is, watch price action tomorrow at 1:30PM UK time—that's when the economic data drops. 

Let's dive into breaking it all down and making sense of it. 

Let's go!!!

TLDR

• Recent economic data from the US showed slower GDP growth but higher-than-expected inflation, causing concerns about potential rate hikes.
• Tomorrow's PCE and Core PCE inflation data release will be crucial, as higher-than-expected inflation is likely to lead to a market selloff.
• Next week, Fed Chair Powell's press conference and Treasury Secretary Yellen's debt issuance guidance should be closely watched for their impact on markets.
• If Yellen announces lower debt issuance and a drawdown of the Treasury General Account, it could provide a liquidity injection, potentially boosting risk assets like crypto.
• The crypto market is currently in limbo, with prices at relatively attractive levels but susceptible to macroeconomic changes.
• We continue to expect a quieter Q2 with the potential for a Bitcoin breakout towards $80k by Q3, provided economic data and liquidity conditions improve in the second half of 2024.

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results. "One Glance" by Cryptonary sometimes uses the RR trading tool to help you quickly understand our analysis. These are not signals, and they are not financial advice.

Today's economic data and what it may impact tomorrow's data

Today, we had the release of GDP data in the US, which came out at 1.6%. This means the US is still growing but at a slower pace than prior quarters. 

This was well below the 2.5% expectations for the figure, though. Alongside this, the PCE Price Index increased to 3.0%, above the 2.9% consensus and well above the prior month's reading of 1.7%. The Core figure was worryingly high at 3.7%, well above the 2.0% previous reading and the 3.4% consensus. Jobless claims came in at 207k, which remains relatively low. 

So what does all the above mean?

The US is still growing economically, but not at the rate it was in prior quarters. This is good. 

But, we have prices increasing, and they are more than expected. This is not good. 

The market has reacted negatively to this. Remember, the market wants Powell to cut Interest Rates this year, but he can only do so if Inflation continues to trend lower. If Inflation begins to trend higher again, that pushes rate cuts out. 

Fortunately, the US is still seeing growth alongside this. If it weren't, that would be a worrying picture, but currently, the focus is still on getting inflation down, and therefore, the Fed has to remain 'higher for longer'. 

This is why the markets have reacted negatively. We've seen risk assets pull back a tad, the DXY re-rate higher, and Yields also re-rate higher = negative for risk assets. The market has now priced for just one rate cut this year, and it comes in Q4 (October - December)

Tomorrow, we have PCE and Core PCE (Inflation) data out. This data will be really key, and the market will likely be very volatile around it. If there are upside prints, i.e., higher than expected inflation, the markets (risk assets) will not like this, and they'll trade lower. 

However, if we get the opposite, the markets will react positively, but likely contained and cautiously, as participants will likely be wary ahead of Treasury Secretary Yellen and Fed Chair Powell next week.

Powell and Yellen will dictate the markets next week

Next Wednesday, we have a Fed Press Conference and interest rate decision. It's 99% likely the Fed won't change interest rates. What the market will really look to is how hawkish Powell ends up being. He will likely walk back the Fed's projections for 2-3 interest rate cuts and forward-guide that the Fed will potentially revise that down to just 1-2 interest rate cuts. The market will expect this and likely not react hugely to it. 

The market will react to Powell's hawkish pushback or general answers to the journalists' questions. We hope he is dovish and suggests that the Fed still has a bias to cut rates this year—this has previously been his stance. So, there is room for Powell to move markets next week. 

However, I (Tom) think the bigger event is Yellen and the Treasury. 

Every quarter, the Treasury publishes a set of documents outlining their expectations for the Treasury General Account and issuance of new Bonds (debt). The markets will be looking for Yellen to issue less debt than expected and for it to be in shorter duration (1Y, 2Y) Bills rather than coupons (3Y, 5Y, 7Y) Coupons. 

If this were the case, the market would rally on this as there would be less issuance for the Bond market to buy up, Yields would come down, and risk assets would move significantly higher. 

Alongside this, if the Treasury guides that they believe the TGA will be substantially lower in $ over the coming quarters, the markets will rally on this also. This is because the Treasury General Account currently has nearly $950b in it. 

If the Treasury guides that they will draw down on that, that would be a direct liquidity injection into the markets. Risk assets would fly on this news. 

Powell and Yellen are the major events next week, and their stance will likely outline the environment for markets in the coming month.

Cryptonary's take

What does all this mean for crypto? 

Essentially, the crypto market is slightly in limbo here. 

The market is generally vulnerable to significant changes in economic data. However, next week, with Yellen and Powell, we're likely to find out more about their current stances, considering inflation has slightly surprised to the upside. 

Do they continue to try to be accommodative, or do they flip and become more hawkish to walk markets back, tighten financial conditions, and, as a result, save Powell from having to hike again? 

It's super hard to say. Buttt...

Prices for the crypto assets we like are generally at relatively attractive levels for what we still consider a bull market. We feel that liquidity will substantially improve in Q3/Q4 24, which should be positive for risk assets and crypto. 

Therefore, we remain in spot positions and are open to the possibility that Bitcoin visits the $58k—$59k area, although we wouldn't be surprised if it does. If it falls to that level, we'll add to spot positions and more of the altcoins we like. We would also continue to steer clear of leverage trading for now.

BTC

For the last six weeks, we've been expecting a much quieter Q2, with the halving being a non-event and the market just consolidating. We are now having that, having also had a large leverage flush out last week on the Iran/Israel missiles. 

This is healthy here, despite the newfound bearish sentiment on Twitter. 

Yes, we do need positive economic and inflation data, and we also expect (and need) liquidity to dramatically increase in the second half of the year. 

If we're right, and we believe we will be if the data doesn't turn for the worse, then the second half of 2024 will likely be very positive for Bitcoin and Crypto. 

For now, we see Bitcoin remaining in its larger bull flag, with a potential breakout to the upside towards the end of May and a target of $80k—something we have been calling for four weeks. 

Please be patient, and don't let the chop rip your portfolio up.