U.S. CPI wipes out expectations of interest rate cut before June, gold and U.S. bonds plunge in response

On Tuesday (February 13), the latest data released showed that the U.S. core CPI recorded a monthly rate of 0.4% in January, the largest increase since May last year, almost extinguishing market expectations for the Federal Reserve to cut interest rates in May. The swaps market is now fully pricing in a postponement of the Fed rate cut from June to July.

The seasonally adjusted monthly CPI rate in the United States was 0.3% in January, and the annual rate was 3.1%; the core CPI annual rate in the United States in January was 3.9%, and the core CPI monthly rate in January was 0.4%, the largest increase since May last year.

After the data was released, swap markets fully priced in the Fed's interest rate cut being postponed from June to July, with a rate cut of less than 100 basis points in 2024.

Spot gold's decline expanded to 1%, approaching the $2,000/ounce mark. The U.S. dollar index hit a three-month high, last trading at 104.84, up 0.7% on the day.

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Fed Rate-Cut Bets Rise

The Federal Reserve’s preferred measure of underlying inflation rose in December by the least in almost three years, adding to bets the Fed will cut interest rates this year.

Core Data Showed Modest Gains, Adding to Soft-Landing Hopes

The core personal consumption expenditures price index rose 2.9% from a year earlier, the smallest gain since March 2021. Personal spending climbed 0.7% from the prior month, the most since September 2023. Traders trimmed bets on Fed rate cuts in the wake of the data. Rate futures traders continued to see a rate cut in May as the most likely first move, with a March cut seen as a bit less than 50-50 chance.

“This was a decent PCE report,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The year-over-year core PCE below 3% is certainly encouraging as inflation continues to moderate toward the Fed’s 2% target. Personal spending was strong, which will keep the Fed on hold and cautious about cutting rates anytime soon. I still believe the earliest a rate cut could happen is mid-to-late Q3. This report — coupled with yesterday’s GDP data — increases the odds of a soft landing, which continues to gain traction.”

Treasury yields, which move inversely to prices, rose across the curve after the data, with the 2-year, 5-year and 10-year rates all climbing. They were at 4.35%, 4.04% and 4.135%, respectively.

In the event of a mild recession, the spread between US investment-grade corporates and Treasuries could widen to 150 basis points from the current 94 basis points, according to Chris Alwine, global head of credit at Vanguard Group.

Pending home sales climbed in December by the most since June 2020, a separate report Friday showed, suggesting that stabilizing mortgage rates may be drawing in buyers. The average for the week ended Jan. 25 increased to 6.69%, but has held within a relatively tight range around 6%, according to Freddie Mac data.

JPMorgan: Less Than 50% Chance of Spot Ethereum ETF Approval

With the recent approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC), the focus in the crypto space has shifted to a spot Ethereum ETF. However, JPMorgan analysts led by Nikolaos Panigirtzoglou are not optimistic about the SEC's approval of a spot Ethereum ETF. The analysts attribute their cautious stance to regulatory and legal considerations, estimating the probability of approval to be no higher than 50%.

"While we understand the arguments, we doubt that the SEC will classify Ethereum as a commodity before May," the JPMorgan analysts said.

In the meantime, the SEC recently delayed its decision on Fidelity's spot Ethereum ETF, extending the deadline to March 5, 2024, for further assessment. Additionally, final decisions on other spot Ethereum ETF applications from the SEC are expected between late January 2024 and August.

The JPMorgan analysts emphasize that the SEC's classification of Ethereum—whether as a commodity or a security—will play a pivotal role in determining the fate of a spot Ethereum ETF.

January 25th marks the SEC's deadline for deciding on Grayscale's spot Ethereum ETF application. Grayscale, which previously overturned the SEC's denial of its Bitcoin ETF, is now seeking approval for a spot Ethereum ETF. Grayscale's prior legal victory could influence the SEC's decision.

While the SEC's recent approval of a spot Bitcoin ETF might suggest a positive shift, SEC Chair Gary Gensler's public statements that the agency neither approves nor disapproves of Bitcoin cast a shadow over the approval prospects of a spot Ethereum ETF.

Moreover, following the SEC's approval of the spot Bitcoin ETF, Bitcoin has declined by over 20% since hitting a three-year high of $49,000 on January 11th. JPMorgan analyst Kenneth Worthington opines that the waning enthusiasm for crypto ETFs is likely to persist, leading to lower token prices, reduced trading volumes, and fewer ancillary revenue opportunities for firms like Coinbase (COIN.US).

Investor interest in the highly anticipated spot Bitcoin ETF appears to be cooling, with Wednesday seeing the smallest inflows since the ETF began trading on January 11. A report from J.P. Morgan showed that nine spot Bitcoin ETFs received approximately $270 million in inflows on Wednesday, if outflows from Grayscale Investment’s spot Bitcoin ETF (which was transformed from Grayscale Bitcoin Trust) are taken into account , the overall net outflow of funds from these 10 ETFs on Wednesday was approximately US$153 million, marking the third consecutive day of net outflows.

JPMorgan said in a report that the performance was "disappointing" and cited it as the reason for downgrading cryptocurrency exchange Coinbase (COIN.US) earlier this week.

Nine new spot Bitcoin ETFs have received $5.2 billion in inflows since listing, offsetting $4.4 billion in outflows from the Grayscale Bitcoin Trust (GBTC). But in recent days, this balance has changed, and while GBTC’s daily net outflows are decreasing, inflows to the other nine spot Bitcoin ETFs have fallen faster.

However, Bloomberg Intelligence analysts said that despite the slowdown in demand, this group of spot Bitcoin ETFs is the most successful ETF in history based on transaction and flow indicators.

Bitcoin prices have fallen more than 20% in the past two weeks following the approval of a spot Bitcoin ETF in the United States. JPMorgan analysts predict that Bitcoin has limited room for further declines as GBTC’s profit-taking has basically ended. Analysts say that cashing out of profits by GBTC investors caused Bitcoin prices to fall, but the worst appears to be over. Despite the positive outlook, analysts warn that if GBTC's 1.5% fee is not reduced soon, the fund could experience continued outflows and lose market share to rivals.

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#BTC的价值本质

Many people are hyping the process of Bitcoin spot ETF. The impact of this factor on the market has gradually exceeded that of macroeconomic policies, such as Federal Reserve interest rates, US CPI, US employment rate, and long-term and short-term US bond yields.

But to be honest, as an ETF target, why is Bitcoin accepted by investors?

At present, the most solid reason is only its correlation with the macro economy since it reached the peak of 60,000. Investors use it to bet on economic or political trends, or to hedge to a certain extent the price fluctuations of other types of assets.

Therefore, Bitcoin investors still need to be less impetuous and pay more attention to its relationship with the prices of major asset classes and macroeconomic factors. This is the support for longer-term value growth.

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