Cryptos plunge

Ethereum loses almost 25% in a day

Chart of the Day

There was a lot going on yesterday with the Fed minutes in focus and Iran on the cusp of signing a new nuclear deal, but it was really the plunge in cryptos that took the spotlight (at least on Twitter…) Even after recovering throughout the day, bitcoin was still 14% lower at the time of writing and ethereum 24% lower. The price of the latter is now down by 40% in a week. The collapse is partially because China has started a regulatory crackdown on cryptos, which in the end will reduce the total number of possible holders. Will they rebound? Perhaps - there are signs that lots of leveraged traders have now been liquidated, which helps to explain the size of the initial declines.

Macro

In the US, mortgage applications for house purchase fell by 4.1% last week. A lot of heat has come out of the market since the start of the year, with mortgage applications now close to their pre-Covid level.

In Canada, inflation rose to 3.4% in April, while core inflation increased to 2.3%. Both stronger than expected and above the BoC’s 2% target.

In the UK, core inflation rose to 1.3% in April. Retailers' price expectations suggest it will rise but remain relatively low.

Markets

The weekly EIA report showed the amount of gasoline supplied to the market rose by 0.4 mn barrels last week and is nowonly 4.0% lower than the average at this time of year over 2017-19.

WTI nevertheless fell sharply yesterday, to $63.4, amid news that Iran will soon enter a new nuclear agreement that will see sanctions on its oil sales reduced.

The Fed minutes caused US yields to rise, as there were signs that Fed officials are slowly laying the work for a conversation about tapering asset purchases.

With the drop in oil prices contributing to a fall in market based inflation expectations, real yields rose even more sharply, by over 10 bp for the 5-year.

Unusually, that didn’t cause that much weakness for stocks, with the Nasdaq managing to eek out a gain.

There were more sizable moves in the FX market, with the commodity exporting currencies being hit by the falls in oil and other commodity prices yesterday.

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