Cryptocurrencies, equities slide on slowing economic growth

Cryptocurrencies and US equities slipped Thursday morning as economic data fueled concerns of stagflation. 

Gross domestic product (GDP), which broadly measures goods and services produced in the first quarter, increased at 1.6% year-over-year, missing analysts’ expectations of 2.4%, data from the Commerce Department showed. This latest reading is a sharp decline from the fourth quarter of 2023, which showed GDP increased 3.4%. 

Consumer spending also trended lower, increasing 2.5% between January and March, a decline from the 3.4% gain posted in the last quarter of 2023. 

Bitcoin ( BTC ) and ethereum ( ETH ) dipped on the report, losing as much as 2% each in the hour after the release. Stocks similarly declined, with the SP 500 and Nasdaq Composite indexes trading 1.3% and 1.7% lower, respectively. 

“The GDP miss likely took investors off-guard — particularly with how solid some of this year’s economic reports have been and with strength in the labor market,” Bret Kenwell, US investment and options analyst at eToro, said. “It’s not necessarily a report to panic over, but it’s one to pay attention to.”

Traders are now looking ahead to Friday’s Personal Consumption Expenditure (PCE) index, which is the Federal Reserve ’s preferred inflation gauge. Expectations are that the headline index will increase 0.3% month-over-month, the same change clocked in February. 

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Year-over-year core PCE inflation is supposed to dip slightly from 2.8% to 2.6%. Another disappointing surprise, though, is not unlikely. The Cleveland Fed’s model is showing real-time inflation is closer to 3%. 

Central bankers are not looking terribly optimistic; they opted to increase their economic projections in March to put core PCE annual growth for 2024 at 2.6%, up from their previous prediction of 2.2%. 

“Even the Federal Reserve, yes, they of the ‘transitory’ camp, see no change in core PCE inflation for the rest of this year,” Noelle Acheson, author of the ‘Crypto is Macro Now’ newsletter, said. “What’s more, the messaging from officials recently has been largely along the lines of ‘we need more evidence’ before cutting rates.” 

The Federal Open Markets Committee’s next meeting is scheduled for the end of this month. Fed fund futures show around a 6% chance of a rate cut in May, according to CME Group.

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