GDP report breakdown
Bitcoin’s price has been correlated to expected monetary policy moves for the last 18 months. In 2023, the market has signaled its expectation that policy will loosen this year.
In layman’s terms, loose policy = cheaper dollars, which drives asset prices higher. BTC has more in its corner than Fed policy, but a peaking of the tightening cycle would be a tailwind for BTC and the timing would also dovetail nicely with the historical 4-year cycle.
So the analysis should be consider in the light of slowing economy in short term is a tailwind for BTC.
Q1 GDP showed a decelerating economy at a 1.1% growth rate vs 1.9% expectation.
As a result, asset markets ripped higher.
Here’s a breakdown of yesterday’s action:
Markets have been signaling a Fed pivot on interest rate policy even though much of the rhetoric from Fed governors has been hawkish.
Yesterday’s report tilted probabilities in favor of the market’s view. To date, economic activity has been resilient.
Industrial and production reports recently have been weak, while employment and consumer confidence has been unwavering.
This GPD report confirmed this setup, with consumer spending driving growth.
The details here are interesting though.
Weakness in inventory investments & nonresidential fixed investments washed out much of the growth from consumer spending.
This tells me the professionals think:
1) they won’t be selling as much in the near future 2) large scale projects are being shelved
Growth also received a bump from the net exports component (exports minus imports).
This is fine, but remember the dollar has weakened substantially since Q4 2022. That means exports sold in foreign currency is converting to more dollars, and imports are more expensive.
As such, we’d expect import growth to slow and export growth to increase.
What I’m saying is the net export piece of GDP growth is likely due in large part to $USD weakness.
Or in other terms, currency risk.
The writing on the wall as I see it spells out the following:
Companies are expecting lower demand and that’s evidenced by weak recent industrial reports, lower inventory investment, & lower CAPEX.
Consumer spending & jobs are resilient but they tend to lag. Layoffs are usually a last resort for small business.
In short, this GDP report is weaker than the headline 1.1% growth, which was already weaker than expected.
So why did the markets love this?
Succinctly, markets love liquidity and low rates. They’ve been waiting for a rate turnaround.
The weakness in the GDP report couple with the impending doom of $FRC signals to the market the Fed will indeed be easing policy this year.
Other considerations are:
1) Earnings have beaten expectations this season, even tho they’re beating estimates that we’re pretty low.
2) keep an eye on small caps. Small banks are still under pressure which could create a credit crunch for Main St.