MacroGuy1 Macro Report - 2022-03-21

Current World Economic Snapshot – Monday March 21, 2022

(All times expressed below are New York – Eastern Standard Time)

Number of Cryptos

The clearest Bull market in Crypto has been the sheer number of coins in existence (data sourced from CoinMarketCap):

• At the end of Q1 2019, 2,136 cryptos existed.
• At the end of Q1 2020, there were 5,285 cryptos, up 147.4% from Q1 2019.
• At the end of Q1 2021, the number grew to 9,045, 71.1% higher than at the end of Q1 2020.
• With a few weeks to go in Q1 2022, there are 18,234 cryptos, 101.5% more than at the end of Q1 2021.

This trend has been consistent in bull and bear markets for the Bitcoin price. At some point, this trend will slow down and those Cryptos with the strongest fundamentals will dominate the market.

Ethereum Gas Fees Dropping

The amount of Ethereum needed to process transactions has dropped 94% since January.

The low gas fees on Ethereum result from less demand for block space.

Historical patterns indicate that when the median cost of using the Ethereum network reaches record lows, the price of Ethereum often increases.

Gas fees on Ethereum have reached lows not seen in over nine months. While decreasing network activity is the main reason for the decline, the number of unique active users on Ethereum remains stable.

While gas fees are low, they won’t necessarily stay that way for long. Looking at historical patterns, whenever the median cost of using Ethereum reaches record lows, it often jumps back up due to the price of Ethereum increasing. Whether a similar event will play out soon remains to be seen.

Economic Data

Building permits and housing starts in the US were very strong last week. Existing home sales were slightly less than expected on Friday, but still a strong expansion. The property market is making those who own property richer and those who do not poorer. On the whole that holds up the investment environment and means that banks and households are prepared to keep putting money into the markets.

The Philadelphia manufacturing index beat expectations so further good news, but bear in mind that the paradox is that too much good news can put further pressure on the Fed to raise interest rates and that can be negative for the markets.

The real fuel behind markets was the Bank of China stating that it would support stock markets, welcomed investment capital and would work to support the listing of Chinese stocks in the US, so markets closed up on the week. We wait to see if their words are followed up with actions. They kept their base rate at 3.70% last night.

Atlanta Federal Reserve Bank President Raphael Bostic said today that he has penciled in a total of six interest rate hikes this year and two for 2023, fewer than most of his colleagues as he worries about the effects of Russia's invasion of Ukraine on the U.S. economy. He mentioned that inflation control was their priority, and he foresaw an economic slowdown soon, although his “contacts” have not provided evidence of that yet.

At the time of writing, Fed Chair Jerome Powell is speaking. He believes that the economy is no longer in need of aggressive Fed support and that there is a need to move interest rates expeditiously to a more “neutral” level (i.e., he means “higher and faster” but has chosen a word that he hopes will scare markets less). From 11.20am-12pm, his speech has had the unavoidable, but probably undesired effect of making markets turn strongly negative on the day.

Bostic’s comments caused Bitcoin and the markets to rise, while the dollar fell. Powell’s speech has now reversed that move, so BTC and markets are down while the Dollar Index is slightly higher. Bizarrely, they still bought $46bn of securities last week so the Fed is still doing plenty to support the market.

Upcoming Market Events and Predictions

Tuesday

1. FOMC members Daly and Williams are speaking separately tomorrow. They generally tread the midway path when talking about rate rises (neither is known to be a Hawk or a Dove), so we shouldn’t expect any more serious effects on the market than we had from Bostic and Powell today. However, at 5pm Mester is speaking, and she is generally seen to be a Hawk and may call for stronger measures to control inflation than Powell has presented today.
2. Weekly Crude Oil stocks are released at 4.30pm. We expect them to be positive as oil production is accelerating in the US to take advantage of higher prices, although there is no forecast for this figure.

Wednesday

1. Powell speaking again will be the main event of the day, but we cannot see him saying anything more than he said today as there is no important data between these two speeches. The same with Daly later on.
2. Home sales are likely to be a positive boost to the market.
3. A large number of crude oil and gas figures are being released between 10 and 10.30am. They could be a negative surprise for oil and stock markets, but we believe they will be surprisingly positive as they have exceeded expectations in the most recent readings.

Conclusion

Powell has turned the market negative today and we can expect some further negative statements this week from Fed officials. Other data that can move markets is looking positive as we start the week. Fed signals that they will raise rates and control inflation can be negative for Crypto in the short-term, but we think it most likely that their actions will never be as powerful as their words.

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