Investors have embraced a risk-off sentiment this week as concerns about the Federal Reserve continued. US indices like the Dow Jones, S&P 500, and Nasdaq 100 have dived while Bitcoin and Ethereum have moved sideways. The US dollar index (DXY) has surged to over $105 while the bond market turmoil has continued.
US PCE inflation data ahead
US equities and cryptocurrencies wavered after the Conference Bureau published a strong consumer confidence report. Its report showed confidence soared from 96 in April to 102 in May, its first monthly increase since February.
A high consumer confidence number is a positive sign since consumers are the biggest part of the GDP. While it can mean that the economy is doing well, it is also a sign that inflation will remain at an elevated level for longer.
The report meant that the Federal Reserve could maintain interest rates higher for longer. In separate statements, Goldman Sachs’s David Solomon and JPMorgan’s Jamie Dimon predicted that the Fed may not cut rates after all.
However, other economic numbers have complicated the situation as they showed that the economy was slowing. According to the Bureau of Economic Analysis, the economy grew by 1.3% in Q1, lower than the first estimate of 1.6%. It was also a sharp decline from Q4’s 3.4%.
Consumer spending rose by 2.0%, lower than the median estimate of 2.5% while corporate profits tumbled by 1.7% in Q1. Altogether, these numbers mean that the economy has moved into a stagflation period, which is characterized by high inflation and slow GDP growth.
The next important data to watch will be the Personal Consumption Expenditure (PCE) report. Economists polled by Reuters expect the data to show that the headline PCE remained at 2.7% while the core PCE remained at 2.8%.
The PCE report is often seen as the better alternative to the popular Consumer Price Index (CPI) because it looks at the price movements in urban and rural areas.
Cryptocurrency prices diverge
Cryptocurrencies have diverged ahead of the PCE report. The ORDI token soared by over 15% and moved to its highest level since April 23rd. It has jumped by over 56% from its lowest level this year even as demand for Bitcoin Ordinals slumped.
Arweave token has soared to $44.2, its highest level since May 23rd while Monero’s bull run accelerated. Its XMR token soared to $146, its highest level since March 16th. It has surged by over 38% from its monthly low. The other tokens that rallied ahead of the PCE report are Jasmy, Notcoin, Ethena, and Lido DAO.
On the other hand, the top laggards ahead of the report were meme coins like Floki, dogwifhat, Bonk, and Book of Meme. These tokens crashed hard as investors took profits. Their sell-off could accelerate if the US publishes a strong inflation report.
