SignalPlus Macro Analysis: Market Continues to Decline, This Week's CPI Data Could Be a Key Driver

2024-05-13 20:00

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Original title: "SignalPlus Macro Analysis (20240513): Markets continue to be sluggish, BTC ETFs saw a net outflow of $264 million last week"

Original source: SignalPlus

Risk assets performed solidly last week, and financial conditions continued to ease after the recent release of weak employment data. The stock market was not affected by the poor U-M consumer confidence and inflation expectations data, with consumer confidence falling to 67.4 from 77.2 last month, while 1-year inflation expectations jumped from 3.2% to 3.5%.

Overall, the macroeconomic surprise index has fallen to its lowest level in 1.5 years, and Citi's hard data indicator saw its largest single-day drop in 1 year last week. While it is too early to call a "hard landing", the US consumer is indeed beginning to enter a phase of weakness as consumer savings decline, PMIs remain subdued, high interest rates weigh on credit demand, and the job market finally slows.

Market focus will be on Wednesday's CPI data, which could be a key driver of medium-term price movements. While markets do want lower inflation data to steer the inflation slowdown narrative back in, market-led CPI fixing has been fairly stable recently, with traders expecting CPI growth of around 3.4% year-on-year in May and possibly slowing further to around 3.1% in December. Easing financial conditions in the short term will offset weak consumer credit demand, while oil price movements could drive inflation trends and expectations towards the end of the year.

Crypto price action was disappointing, with BTC seeing a sharp correction from 63.5k to 60.5k during NY trading on Friday, ETFs seeing small outflows of 85m, and major global CEXs reporting a drop in spot volumes in April, the first decline in about 5 months. With spot prices consolidating for much of the past 1–2 months, price action appears heavy, and existing investors naturally remain biased towards the long side. Additionally, implied volatility has fallen significantly as trend traders sell call options for additional income and long players have returned to using volatility to generate returns during the current period of low sentiment.