Today's market report is a tale of paradoxes. Still standing tall, the US consumer has sent retail sales soaring beyond projections, leaving the Federal Reserve in a conundrum. 

Can they let the good times roll, or is a rate hike on the horizon? And more importantly, how would all these impact the crypto market? 

Let's dissect the numbers and navigate the path ahead.

TLDR

• Strong retail sales surprise: Retail sales data smashes expectations, showing a robust consumer sector.
• Earnings resilience: Banks report positive earnings, signalling a still-strong consumer base. Big Tech earnings are on the horizon.
• Short-term market outlook: Positive trends are expected in the near future, potentially benefitting S&P and Nasdaq.
• Caution in the wind: While the current outlook is favourable, caution is advised as weakening data in 2024 could pose significant risks to market assets.

Disclaimer: Not financial or investment advice. Any capital-related decisions you make are your full responsibility.

Macro data comes in strong - Does the Fed have more to do?

Recent Fed-speak indicates they may be done with their rate hike cycle, but they’ve been unwilling to commit to this. However, does the strong macro data bring the Fed back to the table?

So far, we’re seeing the consumer weaken. However, this weakness is because the data is lower than economists expected. In real terms,  the data remains somewhat strong because it started from a very strong initial position.

Today, Retail Sales data came in far hotter than the forecasts. This month’s print was 0.7%, well above the 0.3% consensus, while Retail Sales YoY came in at 3.7%, well over double the 1.5% consensus. 

In the past few weeks, we’ve seen that the labour market data has also remained relatively strong. A strong consumer is, in its nature, inflationary, and therefore, the FED may have to do more here, either “higher for longer” or a further rate hike (which may come in December rather than November). The Fed needs the consumer to weaken, or they may risk inflation rebounding. 

U.S. earnings season

Earnings from the banks have been relatively positive. Even though many suggest that the consumer is weakening, we see positive, strong data when the data is released. 

Later this week, we will also see Big Tech earnings begin, likely to come in somewhat positively. 

What do we expect from markets?

The narrative for the next month or two can be inflation not rearing back up, growth remaining positive, and the consumer still more than hanging in there. 

This will likely be positive for risk assets, especially the S&P. Does investors' risk appetite spread far enough along the risk curve that Bitcoin and alts get a bid? They can hold up, but any meaningful move higher, say north of $31k - $32k, is unlikely. 

The S&P and Nasdaq may get a bid under these conditions, which could send them both slightly higher. 

However, beyond the next few months, we expect the data to weaken more significantly (say, the start of 2024), which could be the catalyst that brings risk assets much lower than they are currently. 

Cryptonary’s take 

Here’s how to play Bitcoin here.

We remain somewhat risk-off in our approach, while we believe there are still great macro headwinds ahead of us that’ll likely bring risk assets lower. 

We do, however, look favourably on this if this situation were to come to fruition. Hence, we maintain staying relatively cash-heavy for now whilst we wait to deploy our funds in the coming quarter or two when we believe Bitcoin will be sub $24,000 and alts will be substantially lower. The data is worsening despite still being at healthy/strong levels. But, the Fed need to see it weaken, or they risk inflation rearing again. 

In the coming months, the bond market and the issuance of new bonds will be key for the markets. We’ll explore this more in the coming weeks. 

As always, thanks for reading.

Cryptonary, OUT!