Bitcoin is building a base above $16,000 after its dramatic breakdown from below $20,000 earlier in the month. There is now much debate at present about the role of centralised and decentralised exchanges after the failure of FTX and other companies. Some crypto-native experts expect a shift toward the latter while others believe centralised exchanges will carry on managing the majority of crypto volumes. This is because over the long-term, transparency and transaction speeds, plus the pooling of assets will limit institutional involvement in decentralised exchanges. Regulators may well speed up their existing initiatives while focusing on new plans around the custody and protection of customers’ digital assets.
It’s a very busy week full of top tier economic data and central bank speakers in the US which may well determine the near-term direction in risk taking. Focus will be on Fed Chair Powell’s speech on Wednesday with the high potential for market-moving guidance just before the Fed black-out period starts. Important data releases will also be in the spotlight as markets wrestle with a potential slower pace of rate hikes helping to boost risky assets.
Despite the downside miss in the October CPI report, expectations are for Fed Powell to repeat the key messages from the FOMC’s November press conference, which attempted to shift the focus away from a downshift in December and towards the Fed’s broader tightening campaign. Attention will also be on whether he repeats the language that it is “very premature” to contemplate pausing and that tightening has “a way to go”. With a few key data points between Powell’s appearance and the December Fed meeting, most notably the November employment and CPI reports, Powell could look to pre-empt any counterproductive easing in financial conditions that might result from further downside misses.
Thursday will be a busy day for data releases with the Fed’s favoured inflation gauge - core PCE – forecast to rise 0.3% in October from 0.5% previously. We also get the ISM manufacturing survey for the month on Thursday, which is expected to slip. Prices paid will be a focus after the recent soft CPI data and the employment metric as a barometer for the current labour market. The decline in S&P flash PMIs last week is a concern if it spreads into this release as well, with it resulting in an easing of Fed tightening expectations.
The marquee NFP data rounds off the week. The US economy is expected to have added 200,000 jobs in November, down from 261,000 in October. That would be the lowest reading since Feb last year. The unemployment rate is projected to remain at 3.7%, while a slight monthly moderation is anticipated in average hourly earnings growth. The Fed is keen to see a cooling of the labour market to justify smaller rate hikes. That would be good news for risky assets. On the flip side, there are no real signs of tightness in the labour market easing, so if that is the case, then bids in cryptos may start to dry up.