Quiet Markets; Active Crypto

September 02, 2021
  • Ethereum broke violently higher with multiple drivers still looking supportive
  • Crude prices stabilized this morning after a 2% drop yesterday on news that OPEC plans to boost crude production.
  • Brazil's Q2 growth figures disappointed, but inflation remains the focus for now
  • Moody's cut Peru's credit rating by one notch
  • Eurozone PPI surprised on the upside, but the doves are firmly in control

The dollar is slightly weaker, but moves have been modest as markets start getting into the U.S. employment data mood. Still, the DXY has declined for nine of the last ten sessions and down 1.3% from the August highs. European equites are mixed and U.S. futures are higher in a quiet session. The same goes for Asia with the Nikkei closing at +0.3% and disparate gains in EM with China and India up 0.9% and Taiwan and Korea down by the same magnitude. There is not much to report on the fixed income front.

In the crypto space, Ethereum broke violently higher from its August range, rising some 15% over the last four sessions and pulling well ahead of bitcoin. Multiple forces are supporting Ethereum, including EIP 1559, which embeds a burn mechanism in transaction fees to reduce supply, leading to ETH inflation rate dropping from around 3% to 1%. Meanwhile, the boom in non-fungible tokens (NFT) and blockchain gaming continues. There are also some major developments to improve ETH's scaling and lower transaction costs in what is known as "layer 2" solutions, such as Optimism and Arbitrum, which just went live. These solutions may reinvigorate appetite for decentralized finance protocols, which are still recovering from the slump in Q3. All of this could mean the continued outperformance of ETH against BTC and a greater risk of a "flippening" – when the market cap of ETH ($434 bln) surpasses that of BTC ($906 bln). That said, BTC did manage to reclaim the $50,000 level this morning, while ETH is trading around the $3,750 level.

Crude prices stabilized this morning after a 2% drop yesterday on news that OPEC plans to boost crude production. The cartel expects demand to improve across the globe, thus decided to retain its plan to go ahead with the 400K barrel-a-day increase in production for October. Indeed, US data on crude stockpiles reinforces the notion that demand is holding up in the face of the delta variant.



Brazil's Q2 GDP disappointed at -0.1% q/q compared with expectations for +0.2%, suggesting that the generous stimulus has helped the economy gain much traction. The services sector was the silver lining, up 10.8% q/q as the reduction in mobility restrictions starts to take effect, and consumer confidence improves with the vaccines. That said, consumption was flat in the quarter and exports didn't provide much of a boost. Despite the disappointment, we doubt the data will change the BCB's hawkish directive and near-term emphasis on inflation. If anything, it might give the Bolsonaro government an even greater impetus to push for additional spending and try to offset its low popularity.

Moody's cut Peru's credit rating by one notch to Baa1 from A3, highlighting rising political risks in the country. The sovereign rating is still three notches above junk, and the move brings Moody's in line with the other major rating agencies. Still, we see the move as symbolic of the rising tide of political risk across the region. Or, as Moody's put it for Peru, "a continuously polarized and fracture political environment […] weakened policy marking capacity." Peru's CDS prices have remained amongst the lowest in the region (on par with Mexico's) given a comparatively favorable external position, but we expect a lot more uncertainty ahead.

Clues for the jobs data tomorrow have been mixed. Consensus currently sees 725k jobs added vs. 943k in July, while the unemployment rate is expected to fall two ticks to 5.2%. Average hourly earnings are seen steady at 4.0% y/y. ADP private sector jobs came in soft at 374k vs. 625k expected. July was revised to 326k from 330k previously. We know ADP and NFP don't always line up well but this reading will likely pull down the whisper number for tomorrow. That said, we note that NFP came in at 943k last month even though ADP was lower than expected at 330k. Will we get two big downside ADP misses in a row? Stay tuned.

ISM manufacturing PMI surprised on the upside. Headline came in at 59.9 vs. 58.5 expected and 59.5 in July. Details were mostly stronger, with new orders rising to 66.7 from 64.9 in July and prices paid falling to 79.4 from 85.7 in July. The only real disappointment was employment, which fell back below 50 to 49.0 from 52.9 in July. Yet, by all accounts, it's a labor supply issue and not demand. Emergency unemployment benefits end this month, and so we should see more jobs being filled, albeit perhaps at higher wages. ISM services and composite PMI readings will be reported Friday.

Weekly jobless claims are up next. Initial claims are expected at 345k vs. 353k the previous week, while continuing claims are expected at 2.808 mln vs. 2.862 mln the last week. Of note, continuing claims were down -434k (-510k not SA) for the August survey week compared to the July survey week. As such, the labor market continues to heal. August Challenger job cuts, July trade data (-$70.9 bln expected), and factory orders (0.3% m/m expected) will also be reported. Canada reports July building permits and trade data. 


Eurozone PPI surprised on the upside at 12.1% y/y, expected at 11.0% y/y. The ECB hawks will be spooked by rising inflation. As we mentioned yesterday, Knot's and Holzmann remarked that the outlook might allow slower ECB stimulus and an end to PEPP. But at this point, we still think the doves are in control, and so policy is likely to remain loose for the time being. The region's market-implied inflation rates continue to trend higher but at a very gradual pace.


Australia's July trade data came in on the stronger side with a new record trade surplus. Exports rose 5% m/m and imports 3% m/m, both beating forecasts. Iron ore exports remain robust and the second-highest reading in terms of revenue (A$17.1 bln). The Reserve Bank of Australia should proceed with tapering at its next policy meeting on September 7. Some are calling for the RBA to delay tapering, as GDP could contract in Q3 due to the extended lockdowns. The Australian dollar is outperforming on the day, up 1% against the dollar, nearly breaking above the August highs of just over $0.74. 

Korea's August CPI figures surprised on the upside. Headline was unchanged at 2.6% y/y vs. expectations for a drop to 2.4% (i.e., above the BoK's 2% target range), while core ticked higher to 1.8% y/y. The data helps justify the bank's latest tightening move, which we thought would have been delayed due to the delta variant outbreak. That said, we don't see a solid argument for accelerating the cycle and expect more tightening only later in the year or early next year.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction