Stocks seesaw from record highs, US Consumer Confidence drops to 6 month low, ECB taper talk, Canada contracts, bitcoin consolidates

Investors are taking some risk off the table after the world’s two largest economies are showing signs of short-term weakness.  Overnight, China’s PMI readings raised concerns that the delta variant hit to the global economy might be stronger than anyone expected.  China’s manufacturing sector delivered its weakest reading since February 2020, while the service sector posted its first contraction in 16 months.  The delta variant impact on the US economy might be greater than initially anticipated and that won’t bode well for third-quarter spending.  The S&P 500 index was little changed as investors view the recent weakness across the US consumer and both China’s manufacturing and service sectors as temporary, and likely a catalyst for both the Fed and PBOC to remain on offense with support.

US Consumer Confidence slides

US consumer confidence is falling faster than Fed rate hike expectations.  The August confidence reading plunged to the lowest level since February, a sign that supply chain weakness will continue.  The headline consumer confidence index fell to 113.8, much worse than the 123 consensus estimate and downwardly revised 125.1 prior reading.  Both the present situation and expectation surveys saw steep declines which should add to the worry that we are seeing the peak with the US consumer.

The Conference Board noted that spending intentions for homes, autos, and major appliances all cooled somewhat but did contain some optimism for the travel and hospitality industries as consumers continue to make vacation plans sometime over the next 6 months.

ECB

ECB Governing Council Member Holzmann started the taper debate as inflation runs wild.  Shortly after, ECB’s Knot also supported the idea that the inflation outlook could justify a sooner-than-March exit of crisis aid.  Inflationary concerns will be on policymakers’ minds at the September policy and that might come with growing support to reduce the PEPP pace.  Given the economic recovery outlook, expectations remain that the ECB will be able to end its pandemic debt-buying program in March.

Canada

Canada’s economy isn’t evolving the way everyone thought it could.  Canada’s second-quarter contraction puts a major pause in the withdrawal of support from the BOC.  Interest rate hikes just got pushed into 2023 and that will likely limit the Canadian dollar gains for the rest of the year.

Cryptocurrencies

Cardano inflows are soaring as cryptocurrency traders become very excited over the September upgrade that will provide smart contracts.  Cardano operates with a proof-of-stake mechanism and is relatively friendlier to the environment as it is not dependent on mining.  Ethereum is getting too expensive and Cardano might be able to attract users if their smart contracts launch successfully. Cardano’s price has skyrocketed since the beginning of the year, up over 1500% and some investors are confident this is only the beginning of another move higher.

The cryptoverse continues to grow and while bitcoin dominance is fading as other coins dominate the embracement of blockchain technology, long-term investors should be upbeat for the entire space.  Bitcoin is consolidating and will likely need a major catalyst to break above the USD 51,000 level.

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