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Market Volatility and Global Economic Slow Down Could Cause Widespread Use of Cryptocurrency by Governments

By Glenford S. Robinson

The U.S. economy has been jumping up and down lately, with some experts saying, the economy is heading for a recession, while others disagree with that notion. Well, our discussion today will involve opinions supporting the premise that the U.S. economy is not heading for a recession, but instead experiencing increase levels of volatility. We will review monthly economic data to support such view. Our analysis of current economic data will help to support our hypothesis that the US economy continues to show signs of improvement despite an increase in volatility. Therefore, if financial markets under-perform this month, they will also over-perform next month and vise-versa. This is just the ebb and flow nature of current financial markets as a result of geopolitical events and tariff wars. These two fundamental factors also affect activity levels in susceptible sectors within the economy, such as employment and manufacturing.

On Friday, the S&P 500 index (SPX) closed at 3,146 points, extending gains achieved after rebounding from a 3-day pullback ended on Tuesday, December 3rd that saw the SPX dropped to a low of 3,069.50 points from a high of 3,158 points on Monday December 2nd one day earlier. Positive Nonfarm payroll employment and unemployment numbers contributed to this S&P 500-rise on Friday. 

The Nonfarm Payrolls Report measures changes in the total number of people employed during the previous month, excluding those working in the farming industry. Job creation serves as the leading indicator of consumer spending, which accounts for the majority of economic activity.

A higher than expected Nonfarm Payrolls reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

The Nonfarm Payrolls Report for November released on Friday, December 6th, increased by 266,000, following a-156,000-rise in October, easily beating market forecasts of 186,000. This is the largest advance in payrolls since January, as health care, professional and technical services and manufacturing saw the addition of more jobs. Job increase in the Manufacturing sector was due impart to employees returning to work from the GM strike, which also caused the unemployment rate to unexpectedly decreased to 3.5 percent. This matched September’s unemployment reading, which was the lowest since 1969. The Bureau of Labor Statistics released the Nonfarm Payrolls Report on Friday, December 6, 2019 at 8:30 AM, New York Time.   

The Unemployment Report measures the percentage of unemployed people in the workforce actively seeking employment, during the previous month. A higher than expected reading of the Unemployment Report should be perceived as negative for the U.S. economy and bearish for the USD, while a lower than expected reading should be perceived as positive for the U.S. economy and bullish for the USD. The Unemployment Report reading for November, beat market forecasts of 3.6% and a previous reading of 3.6%, by posting a reading of 3.5%. The Bureau of Labor Statistics released the Unemployment Report on Friday, November 6, 2019 at 8:30 AM, New York Time.

Here comes the irony of the U.S. economy. This irony shows, that increase volatility, is at play. The first proof of this, screams out in the form of the Disappointing ISM Manufacturing PMI for November, which came in at 48.1% missing market forecasts of 49.2% and a previous reading of 48.3%.

The monthly, Institute of Supply Management (ISM) Manufacturing, Purchasing Managers Index (PMI), provides a glimpse, into the health of the U.S. economy. The index derives by surveying purchasing managers from 400 of the top manufacturing companies.

Purchasing managers perform all the ordering of supplies for their companies; So, they know first-hand, the business condition of their companies. When their companies’ production activity increases, these managers buy more raw material for production purposes, and when production activities slow, they buy fewer raw materials to fulfill product orders. 

Traders look forward to the release of this information as manufacturing numbers can provide, vital information into the health of the economy. ISM Manufacturing PMI-reading above 50 indicates expansion in the manufacturing sector and economic growth, while readings below 50 indicates contraction in the sector and economic slowdown. A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

 The current ISM Manufacturing PMI reading for November, clearly under-performed. However, this decline could very well be a false negative result, simply because of the GM strike, where employees voluntarily walked off their jobs at the General Motors manufacturing plant. Automobile production, constitutes a large part of the Manufacturing industry. So, this could definitely be a reason for the low numbers. These striking GM employees have now returned back to work, so next month’s ISM Manufacturing PMI numbers could very well be different. A positive number therefore, would not be a surprise. Another possible reason for the low ISM Manufacturing PMI numbers could be the US-China trade war, where a complete stoppage of manufactured goods to China has occurred.

The Non-Manufacturing ISM Report on Business, relates to data compiled from monthly replies, to questions asked of more than 370 purchasing managers, in over 62 different industries, representing nine divisions, from the Standard Industrial Classification, (SIC) categories. The ISM Non-Manufacturing PMI for November, registered 53.9 percent, 0.8 percent lower than the previous 54.7 percent registered in October and missing forecasts of 54.5 percent. The Non-Manufacturing sector grew, consecutively for 118 months and the economy grew, consecutively for 124 months, but at a slower pace, according to the ISM Chairman Anthony Nieves. An NMI above 48.6 percent, over time, generally indicates expansion of the overall economy according to the ISM.

However, a reading above 50 percent indicates expansion in the non-manufacturing sector and the economy, while a reading below 50 indicates contraction, in the sector and the overall economy. The Chairman said, “The past relationship between the NMI and the overall economy indicates that the NMI for November (53.9 percent) corresponds to a 1.9-percent increase in real, gross domestic product (GDP) on an annualized basis.”

A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. Real Estate, Rental & Leasing along with Health Care & Social Assistance, reported growth in November.

The ISM reported that tariffs, impacted prices for a broad array, of products used in the delivery of services, and completion of products for its clients. The Institute further asserted that it is being negatively impacted by tariff-driven price increases, with many of its suppliers, reported looking for alternative manufacturing and supply locations outside of China, but with limited or no success so far. The ISM released the Manufacturing PMI on Wednesday, December 4, 2019 at 10 AM, New York Time.

In our analysis, we saw two US economic data releases, with positive numbers and two with negative numbers, even though the economy continues to grow. So, these results simply tell us that the economy continues to show some level of volatility and growth, even though the growth happens to be slow, but the economy is definitely not heading for a recession. Wide spread use of cryptocurrency by governments looks more likely, than the advent, of a recession in the near future.

Gold and Bitcoin remained relatively quiet, holding within their recent ranges of $1,454 to $1,484 per troy ounce and $7,237 to $7,659, respectively. On the Bitcoin side of things, large movements of Bitcoin have been spotted moving from one address to the next. A whale-move on Friday, dispatched 50,000 Bitcoins, an equivalent of $410 million, USD. In fact, on September 5th a huge whale-move of 94,504 Bitcoins, took place on the Blockchain. That equates to $711 million, USD. Many of these large bitcoin moves did not occur on exchanges, but when they do, large spikes in prices will ensue. For example, if a large buy-order occurs on an exchange, then a very large upward spike in prices of that cryptocurrency will follow; and if a large sell-order on an exchange occurs, then a very large downward spike in prices of that cryptocurrency will also occur.

Many proponents of cryptocurrency believe that cryptocurrency will replace fiat currency in the near future. This future could be closer than we think. Sources say China is developing its own centralized blockchain and cryptocurrency; This will revolutionize the use of centralized cryptocurrency because China has already adopted to the use of electronic payment on a larger scale than any other developed nation. Merchants in major Chinese cities no longer accepts paper money or coins. Elsewhere, the Ukrainian Government just passed a law legalizing the use of virtual assets as payments.

On the Euro front, Germany’s industrial production for October 2019 dropped 1.7 percent month-over-month, missing forecasts of a 0.1-percent-growth, following a 0.6-percent-fall in the previous month. Yet, another conformation that the Eurozone economy continues to struggle.

German Industrial Production measures changes in the total inflation-adjusted value of goods produced by manufacturers, mines, and utilities. A higher than expected Industrial Production reading should be perceived as positive for the German economy and bullish for the EUR, while a lower than expected reading should be perceived as negative for the German economy and bearish for the EUR. The German economy plays the largest role in the Eurozone economy.

A contributing factor to the under-performance of the German Industrial sector could very well be the US-China trade war. The trade war affects German-made products manufactured in the US from being exported to China, such as automobiles built at plants in the U.S. The Federal Statistical Office released the German Industrial Production report on Friday, December 6, 2019 at 2 AM, GMT.

Market Volatility and Global Economic Slow Down Could Cause Widespread Use of Cryptocurrency by Governments

Disclosure

The Mstardom Finance trading team currently trades the EUR/USD currency pair, stocks, and cryptocurrency. 

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