Matching optimism

Binance, the cryptocurrency exchange platform, has been under pressure again as the global crackdown on the alternative asset deepens. Regulators in Lithuania and Hong Kong have placed restrictions on the company after accusations of providing unlicensed investment services, a move that mirrors that of the UK and Italy. With the crackdown beginning to worsen in Europe, it seems only a matter of time until other European nations follow suit.

Despite this increase in regulation, institutional investors are predicting a rise in trading activity over the next 12 months. In a survey of investors with $380bn in assets under management, 57% believed further inflows into cryptocurrencies is probable, with 29% predicting a significant rise. Prices have tumbled over the last few months, with Bitcoin halving and the wider cryptocurrency market losing $1 trillion in value since May. However, retail investors appear to be matching the optimism of institutional investors, with the Financial Conduct Authority (FCA) reporting that the number of people holding cryptocurrencies in the UK has swelled to over 2.3 million.

Bottom line: The structural move towards greater regulation doesn’t appear to be hurting sentiment around the digital asset. We could point to activities such as central banks across the globe engaging in huge levels of quantitative easing and artificially inflating asset prices, as a rationale for these inflows. Arguably, the rise of anti-establishment movements—such as the Donald Trump Presidency—has shifted attitudes in society, facilitating the move away from so-called ‘traditional’ fiat currencies. With 54% of fintech experts currently predicting Bitcoin to overtake central bank-backed currencies by the year 2050, it appears the recent crackdown is just another hurdle that the crypto bulls are confident they’ll overcome.
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The week ahead

 

GBP 

After a relatively poor week, in which Sterling fell around 1.0% against the US Dollar, the Pound has already tumbled another 0.5% against the Greenback since last night’s open. Markets will be watching for a meaningful break below the 1.37 interbank handle to add more weight on an increasingly heavy Pound. In the news, today’s ‘Freedom Day’ sees the removal of a number of remaining restrictions. This easing has been viewed cynically by market participants as the UK’s infection rates soar. Additionally, senior government officials have made a U-turn on a plan that would’ve seen them skip self-isolation in favour of daily testing after being in contact with Covid-positive Health Secretary, Sajid Javid, after criticism from opposition parties. Data events this week are light until Friday, so we can expect the focus to remain on the spread of the Delta variant of Coronavirus.

  • On Monday at 11am, Jonathan Haskel from the Bank of England’s Monetary Policy Committee spoke at the University of Liverpool.
  • On Wednesday at 7am, Public Sector Net Borrowing for June is forecast to drop from 23.6B to 21.5B.
  • At 7am on Friday, m/m Retail Sales are expected to come in at 0.0% in June following May’s -1.4% reading.
  • On Friday at 9.30am, flash Manufacturing and Services PMI’s will be released. The services figure is predicted to dip to 62.1 from 62.4 while the manufacturing reading could drop to 62.3 from 63.9.

 

EUR

The Euro briefly dipped beneath the 1.18 level against the US Dollar last week, and the risk-off tone which has begun this week has seen the common currency fall to its weakest since the 5th of April. Covid cases are on the rise on both sides of the Atlantic and markets are casting an eye towards Thursday’s European Central Bank meeting. Officials at the meeting may decide to extend the current bond-buying scheme, a move that would place further pressure on the Euro.

  • German PPI m/m will be released at 7am on Tuesday morning. The consensus is for a drop from last month’s 1.5% to 1.3% in June.
  • On Thursday, the ECB’s Monetary Policy Statement will be released at 12.45pm along with their Main Refinancing Rate, which is predicted to remain at 0.0%.
  • The ECB’s press conference will follow on Thursday at 1.30pm.
  • Friday will see the release of flash Services and Manufacturing PMI’s from the Eurozone’s major economies. At 8.30am, the German Services PMI read is forecast to increase to 59.4 from 57.5, while the Manufacturing figure is expected to dip to 64.2 from 65.1. The Eurozone Manufacturing PMI is forecast to come in at 62.5 in July, just a shade lower than June’s 63.4.

 

USD

The US Dollar has been on the march in recent weeks, with the trade-weighted index having risen by almost 4.0% since late May to trade at its strongest level since early April. It’s expected that a continuation of the current risk-off mood will further benefit the Greenback, while markets are still expecting some tightening of Federal Reserve monetary policy in the near future. Looking at the pandemic, the Delta variant is on the rise and could threaten to derail the American economic recovery, with only around half the US population fully vaccinated. Data this week is lighter than usual, but Friday’s flash PMIs have the potential to shift market sentiment with either an upside or downside surprise.  

  • During a quiet data week for the US, the first notable release will be Thursday’s Weekly Jobless Claims at 1.30pm. The figure for the preceding week is forecast to come in at 350K from 360K the week before.
  • Friday will also see flash services and manufacturing data out of the US. At 2.45pm, the Manufacturing PMI release is forecast to dip very slightly from 62.1 to 62.0, meanwhile, the Services PMI is expected to remain unchanged at 64.6.

 

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