Concerns over potential stagflation in the US economy intensified following the release of weak economic data, negatively impacting traditional equity markets and the cryptocurrency sector.
The ISM Services Purchasing Managers’ Index (PMI) for July registered at 50.1, falling below economist expectations of 51.5. This indicates a significant slowdown in service sector growth, hovering near the contraction threshold of 50.0. Within the report, the employment sub-index slumped to a concerning 46.4, while the prices paid component surged to 69.9 – marking the highest inflation pressure reading since late 2022.
These indicators, signaling slowing growth coupled with rising inflation, fueled investor anxiety about stagflation. This sentiment triggered declines across major US stock indices, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
The cryptocurrency market, particularly Bitcoin, mirrored the downturn. Bitcoin prices fell by approximately 1% as the data heightened risk aversion among investors.
Market expectations for Federal Reserve interest rate adjustments shifted notably. Traders scaled back forecasts from anticipating three rate cuts this year to now pricing in only two. Further reduction is possible if future data strengthens the stagflation narrative.
Notably, Bitcoin continues to demonstrate increased sensitivity to macroeconomic data releases, with alternative cryptocurrencies largely tracking its downward movement in response to the concerning signs from the US economy.