Disappointing US Economic Indicators Deliver Cryptos a Temporary Reprieve

Key Insights:

• Going into the Tuesday session, the crypto market was under pressure, with a post-US closing bell rebound limiting Monday’s losses.
• Today, US prelim private sector PMIs for August and new home sales for July were the key stats of the US session.
• Increased crypto market sensitivity to macro and monetary policy places the US economic calendar in the crypto market headlights.

Recent US economic indicators delivered a marked shift in sentiment towards the US economy and Fed monetary policy.

The crypto market response has been evident, with bitcoin (BTC) retreating from $25,000 and the total crypto market cap sliding back to sub-$1,000 billion.

Investor sensitivity to economic indicators placed greater emphasis on today’s private sector PMIs, and especially the services sector PMI. Historically, the housing sector has proven to be an effective barometer of the US economy. For this reason, we also consider housing sector numbers.

US Private Sector PMIs Deliver Temporary Crypto Market Reprieve

In August, the US manufacturing PMI declined from 52.2 to 51.3 versus a forecasted fall to 52.0. Materially, the services PMI slid from 47.3 to 44.1. Economists forecast an increase to 49.2.

As a result, the composite PMI fell from 47.7 to 45.0 versus a forecasted increase to 49.0.

According to the August prelim survey, weaker client demand weighed on private sector output.

• Service sector activity fell at the fastest pace since May 2000.
• Interest rate hikes and inflation weighed on spending due to declining disposable incomes.
• New orders contracted at the fastest pace for over two years, with new overseas business falling at the second fastest rate since December 2020.
• The services sector recorded a slower pace of hiring, while outstanding business slid at the quickest pace since May 2020.
• Input costs continued to rise though at the slowest pace in seven months.
• Output prices rose at the softest pace in 17 months due to greater competition.
• Despite the headline PMI and new orders slide, optimism rose to the highest level in three months.

The crypto market reaction to the private sector PMIs was positive, suggesting greater fear of the Fed than a recession. From a monetary policy perspective, the PMI numbers may force the Fed to take the foot off the gas.

Following the PMIs, new home sales were also disappointing. In July, new home sales tumbled by 12.6%, following a 7.1% slide in June. Rising mortgage rates beyond 5% coupled with inflation have hit buyer demand.

Affordability issues had been prevalent before the Fed’s rate hikes and the surge in consumer prices. Inventories and strong demand have pushed home prices northwards in recent years.

Crypto Market Reaction to the Weak Numbers Sends a Clear Message

In response to the weaker PMI numbers and a deeper contraction in the services sector, the total crypto market cap increased from $1,010 billion to a high of $1,018 billion.

Market reaction to the weak new home sales figures was also positive. The crypto market cap struck a post-stat high of $1,021 billion.

The message seems clear. Weak numbers should force the Fed to reconsider its September policy move. Investors will likely worry about a US recession after this week’s Jackson Hole Symposium.

Across the crypto top ten, there was a clear shift in sentiment, with the top ten moving into positive territory.

Solana (SOL) and Ethereum (ETH) lead the way, with gains of 1.57% and 1.54%, respectively. Bitcoin (BTC) is up 1.08%.