Philly Fed's April Manufacturing Business Outlook Survey Jolts Global Risk Markets and Gives Crypto Assets Their

An unprecedented surge in the Philadelphia Federal Reserve's May Manufacturing Business Outlook Survey has jolted global risk markets

The massive surge in the Philadelphia Federal Reserve’s May Manufacturing Business Outlook Survey has jolted global risk markets and given crypto asset traders their clearest macro catalyst of the year.

What Happened: The massive reading on Monday saw the Future New Orders diffusion index rise by forty-plus points, a move that Julien Bittel, head of macro research at Global Macro Investor (GMI), called “literally” historic.

“Philly Fed data for May dropped yesterday — and the Future New Orders index just made history. Literally. ... Expectations for new orders posted the largest monthly spike ever recorded — going all the way back to the index’s inception in May 1968. A staggering +4.3 standard deviation move,” Bittel said in a post on X.

For perspective: that’s an even bigger move up than the downside collapse during the depths of the 2008 Global Financial Crisis (-4.1σ). Let that sink in.

Philly Fed data for May dropped yesterday — and the Future New Orders index just made history. Literally.

Expectations for new orders posted the largest monthly spike ever recorded — going all the way back to the index’s inception in May 1968. A staggering +4.3 standard deviation move.

— Julien Bittel (@globalmacrobias) May 16, 2024

Q1 growth was weak. The reason is straightforward — financial conditions tightened sharply in Q4. The dollar ripped, bond yields surged … a classic tightening phase. This set up a perfect storm for slower activity.

Proximate trigger: businesses panic-loading inventories ahead of Trump tariffs, and markets front-running the inflation narrative. These dynamics are a direct replay of Q4 2016 during Trump’s first term. Just like early 2017, that tightening spilled over into slower growth momentum in Q1. We’ve highlighted repeatedly: this had all the hallmarks of Q4 2016 during Trump’s first term.

Where 2017 began with doubt and ended in a synchronous global boom, 2024 is rhyming. Those Q1 headwinds have flipped into Q2 tailwinds. Everything flows downstream from changes in financial conditions …

Purchasing managers’ expectations are shifting — and shifts in thinking eventually translate into action. Sentiment shifts first. Action follows. It always does. Bullish.

Crypto traders responded accordingly, with Bitcoin reclaiming the $104,000 level in early-European trade, though it later slipped. Ether remained steady near the $2,600 mark, and high-beta layer-one tokens such as Solana and Avalanche also moved in tandem.

An upside economic shock like this — +4.3σ on new orders — is rare. But the bigger story is market positioning. Asset prices are not prepared. The melt-up is the asymmetric risk. Now it’s being repriced.

Indeed, the scale of the shock is less important than how under-positioned investors are for an upside growth surprise. This is a buffer against further downside in the new year.

When this dropped, markets didn’t even blink. Because the shift’s already in motion. This wasn’t news, it was confirmation. That’s the real tell, when markets shrug off a four-sigma upside shock. It means the turn is already upon us — and it’s just getting started.

The Philly Fed's Manufacturing Business Outlook Survey for May 2024 showed a massive shift in expectations for new orders. The diffusion index rose by a staggering 40-plus points to 38.0, marking the largest monthly spike in the index's history, which spans back to May 1968.

This surge was so significant that it surpassed even the depths of the 2008 Global Financial Crisis, where the index saw a -4.1 standard deviation move in the third quarter.

The survey's results also indicated a substantial increase in the employment diffusion index, which jumped from -12.0 to 10.0, the highest reading since April 2022.

This optimistic economic snapshot stands in stark contrast to the pessimistic outlooks from both the New York Federal Reserve's Consumer Expectations Survey and the University of Michigan's final consumer sentiment index for May.

These surveys highlighted consumers' dampened expectations for both inflation and income gains over the coming year.

The crypto market responded accordingly, with Bitcoin reclaiming the $104,000 level in early-European trade, though it later slipped. Ether remained steady near the $2,600 mark, and high-beta layer-one tokens such as Solana and Avalanche also moved in tandem.

At press time, the total crypto market cap stood at $3.28 trillion.