Thursday's Markets Update (August 17, 2023)

18 Aug 2023 by rate3

On Thursday, The Philadelphia Manufacturing Index skyrocketed, but traders ignored all data as the Nasdaq plunged under 13.4K on a continuing technical sell-off with a nearest support level at around 13K. This served as a catalyst for Bitcoin's sharp (and long overdue after two months of unprecedented stagnation) correction to 25K, with other coins following suit (for example, Ethereum touched 15,500). As a result, the Market Sentiment Indicator changed sharply from bullish 53 to bearish 37. In other words, crypto is back to normal :)

Details

The Philadelphia Fed Manufacturing Index rose to 12 in August (market forecasts was -10), the first month of growth since August 2022. New orders and shipments were positive for the first time since May 2022, but employment declined further.

Comment

The recent sudden ups and downs in a number of orders suggest that the Federal Reserve's (Fed) monetary policy has become very confusing to all market participants, not just traders. This is because the Fed has been sending mixed signals about its intentions, raising interest rates in an effort to combat inflation while also signaling that it is willing to be patient and not raise rates too aggressively. This uncertainty has created a volatile market environment, with investors unsure of how to position themselves.

One way to measure the uncertainty in the market is to look at the VIX index, a measure of implied volatility in the S&P 500 index. The VIX index has been rising in recent months, reaching its highest level since March 2020. This suggests that investors are increasingly worried about the future of the economy and the Fed's ability to manage it.

The Fed's monetary policy is based on the Keynesian orthodoxy, which holds that the government can use fiscal and monetary policy to manage the economy. However, the Keynesian orthodoxy has been criticized for being too simplistic and for not taking into account the complexity of the real economy. In the case of the current economic situation, the Fed's attempts to combat inflation by raising interest rates are likely to have a negative impact on economic growth. This is because higher interest rates will make it more expensive for businesses to borrow money, which could lead to layoffs and slower investment.

The bottom line is that the Fed's monetary policy is creating uncertainty and volatility in the market. This is likely to continue in the near future, as the Fed tries to balance the need to combat inflation with the need to avoid a recession.