A bad news rally

Macro

US payrolls fell 23k in July against forecasts near +80k, and the miss did in one print what three dissents could not, with September hike odds dropping from 55% to 40% as the 10-year fell toward 4.6% and risk assets rallied into the weekend.

On the week, gold topped our board at +7.25%, with the Nasdaq up 5.09%, the Russell 2k 3.56%, the S&P500 3.51%, BTC 2.15%, altcoins 1.53%, ETH 1.39% and 20Y+ Treasuries 1.03%, while Brent fell 6.85% as the only red line. Gold leading a board where everything except oil gained points at rate repricing as the engine.

A 264k exodus from the labor force drove the unemployment dip to 4.1%, with participation at its lowest outside Covid since 1976, while wage growth slipped to 3.2%, a five-year low, and prior months were revised down a combined 103k.

Weak for the wrong reasons is still weak to a rates market, so the hawks' labor argument is gone until proven otherwise, and Wednesday's CPI now decides whether the repricing holds. We flag that private payrolls actually rose 30k against a 53k government drop that may revise away, so the print is softer than its headline and the Fed knows it.

Brent's 6.85% drop came as Iran and Oman closed in on a navigation framework for the Strait of Hormuz, though Tehran says the deal alone won't reopen the waterway and wants US concessions including compensation first, and hit another ship in the strait even as talks progressed. The market has priced the de-escalation but the reopening remains unagreed, so the energy relief feeding into Wednesday's CPI can reverse on one headline.

After last week’s Situational Awareness episode, it looks like the market turned risk on again, which is in line with what we’ve been seeing pretty much all year, any weakness or dip in the equity market gets bought very quickly.

Crypto joined the rally with its own supply of good news.

Digital Assets

$853.5M flowed into US spot BTC ETFs across five straight positive sessions, their best week since mid-April, while ETH funds added $244.9M for a fifth consecutive positive week, with BlackRock capturing over 80% of both. The inflows landed on subdued volumes, the signature of allocators building positions on a schedule, and it reverses the rotation-away-from-BTC story we carried the past two weeks. Balchunas flagged the Coldcard aftermath as a possible tailwind behind the buying, though the link is unproven.

BTC's 2.15% week lagged the S&P's 3.51% despite touching an August high above $65.3k on the payrolls print Friday, unusual for a high-beta asset in a broad risk rally, and it tells us the ETF bid is being met by supply somewhere. That fits the setup we described last week, however the fresh capital column is no longer empty.

Wells Fargo said Tuesday it will launch tokenized deposits this fall, starting with a USD-GBP corridor for corporate clients on its own chain and expanding through 2027, joining JPMorgan and Citi in moving settlement rails on-chain before stablecoins pull the deposits away. The banks are not adopting crypto's assets; they are adopting its plumbing to defend their own, which is the quieter half of the institutionalization trade.

Finally, Thune filed cloture on the CLARITY Act at 4:52am Saturday, setting a procedural vote for September 15 that needs at least seven non-Republicans, which upgrades last week's shelving from an indefinite delay to a dated test, though "Galaxy"the street" seems to have cut 2026 passage odds to 30%.

Our take:

“ETF inflows are back, but we need to see them continue for a little longer before turning outright constructive"

Last week we argued the incremental seller was close to depleted and that a rally would catch many offside. The week delivered the flows, with $1.1B into the BTC and ETH ETFs combined, while price barely followed, so the offside positioning largely remains. The improvement in ETF flows is encouraging, but one week doesn't tell us much about the structural nature of the inflow trend.

We want to see the ETF bid and DAT activity hold up through the end of summer before turning outright constructive, especially with the whole risk complex just having moved on one number as a hot CPI on Wednesday that pushes September hike odds back through 50% takes the rally's floor out.

Catalysts are CPI on Wednesday 12 Aug, PPI Thursday 13 Aug and retail sales Friday 14 Aug, with Jackson Hole on 27-29 Aug and the CLARITY cloture vote on 15 Sept now anchoring the September calendar.