Cryptocurrency Ends the Week in a Slump

To say the least, Friday capped what was an up-again, down-gain week for crypto. After China took a second swipe at Bitcoin in less than three days, traders were aggressively selling.

At the end of the day, Bitcoin fell by 12 percent, Ethereum by 20 percent, and Dogecoin by 18 percent. The drop in the value of crypto appeared to be a factor in the stock market where Nasdaq, which was up on the day, fell in the last hour of trading to close near the day’s low.

A statement on Friday from Liu He, Chinese Vice-Premier, reiterating Beijing’s decision to put an end to cryptocurrency mining and trading, is seen to have triggered the decline.

Late afternoon on Friday, crypto exchange Coinbase showed a price for Bitcoin slightly about the $34,000 mark, a price that was still above Wednesday’s low of $30,000. It was on Wednesday that the People’s Bank of China first warned financial institutions off of proving crypto-related services or accepting crypto as payment for products.

The S&P 500 index as well as the tech-focused Nasdaq Composite Index also closed lower on the day. Although Nasdaq closed lower, it did remain in positive territory for the week. The same cannot be said for the S&P 500 index which closed 0.4 percent down on the week, the first back-to-back weekly declines since earlier this year.

Adjusting the Pace of Asset Purchases

Wednesday saw the publication of the minutes from the Federal Reserve’s policy meeting. The minutes included a statement alluding to the need “at some point” to begin discussions on a plan focused on adjusting the pace of asset purchases.

Before the release of the policy meeting minutes, global equities had been very volatile. However, once it became clear that the Fed was in no great hurry to reduce its purchase of $120 billion monthly bond purchases, equities settled. The monthly bond purchases by the Fed have had a positive impact on financial markets for over a year.

Jim O’Sullivan, Chief U.S. Macro Strategist for TD Securities, stated they were remaining skeptical that a countdown signal could be ready by June or July. For tapering to be announced before the end of the year, an announcement would be needed shortly.

Changes in Economic Output

Based on investor interviews, business conditions in the United States are booming.

Data released by the PMI (Purchasing Managers Index) indicates that the manufacturing and service sector is strong. Topics covered were hiring plans and new business. The resultant reading of 68.1 is the highest-ever for May.

A reading of 50 is the separation point between growth and contraction. The May reading appears to have been driven by the fastest service sector upturn ever recorded, partly due to the reopening of previously closed sectors of the economy.

Surveys conducted by the PMI are closely scrutinized for evidence of economic recovery. The survey results also provide meaningful insight into potential levels of inflation in the future, inflation that has the potential of eating into real returns from stocks and bonds.

According to research and analysis firm HIS Markit, the rate of input price inflation established a new survey high. Policymakers at the Fed see inflation and inflationary pressure as an effect of the post-pandemic boom in demand. A rally in global stocks has paused as investors ask themselves if the central bank is moving too slowly to tackle the increase in prices.

With the economy improving, equity markets may internalize that there is less need for support of monetary policy as the data continues to improve, this sentiment according to Mobeen Tahir, Director of Research at Wisdom Tree.

Following the publication of the PMI survey, the Euro dropped 0.3 percent to $1.2185. The dollar index was up 0.2 percent by the close of trading in New York.