Salutations for the morning. Price pressures should be lessening, according to US inflation data. Bonds with an inflation rate are being liquidated by traders. Bitcoin reaches $50,000. This is what’s influencing markets.
Asia Quick Take of the Global Market, 2024
Ongoing deflation
The Federal Reserve is expected to begin reducing interest rates this year if January figures, which are scheduled to be released on Tuesday, confirm the US’s ongoing deflation. Based on projections provided by Bloomberg, the Consumer Price Index is expected to have decreased from 3.4% in December to 2.9% year-over-year, marking the first reading below 3% since March 2021.
Investor confidence was bolstered by a New York Fed study released on Monday, which revealed that medium-term inflation forecasts have fallen to their lowest level since at least 2013. Officials remain divided over the inflation discussion, though, with Richmond Fed’s Thomas Barking arguing that inflation is approaching target but not quite there and Fed Governor Michelle Bowman emphasising that the benchmark lending rate is in a healthy place.
Jitters in the market
Risk assets, however, moved ahead of the price data, with the S&P 500 losing ground as it got close to 5,050. Tesla’s fall contributed to a dip in the Nasdaq 100. Even Nevertheless, worries that the market is overstretched are refuted by the overall 2024 equity advance.
As evidenced by the decline in assets from the ten largest inflation-linked bond ETFs, investors appear to be growing more optimistic that the Fed has managed inflation. Their total assets fell to $57 billion from a peak of $100 billion due to cash outflows and capital losses. All the same, strategists at Citigroup caution that investors are not fully appreciating the possibility of a shorter cycle of quantitative easing a la 1998, which was quickly followed by rate hikes. At 4.17%, the yield on the 10-year Treasury note barely moved.
Trade limitations In response to allegations that roughly twenty
two companies, three of which are grounded in China, are abetting Russia’s military operations in Ukraine, the European Union has put forth new trade restrictions.
This would be the first time since the irruption that the EU has placed limitations on businesses in landmass China, should it be enforced. Businesses from Hong Kong, Serbia, India, and Turkey are also on the list. Beijing is one of the EU’s most important trading mates, especially Germany, for whom China is the largest request for automakers like VW, making this problem extremely important.
$50,000 for Bitcoin
Bitcoin tripled in value since the beginning of 2023 and over $50,000 for the first time in almost two years because to a persistent appetite for riskier assets, even though it is still below its all-time high of nearly $69,000. One month after the historic launch of Bitcoin spot funds,
the milestone has been reached. Bloomberg Intelligence data indicates that the ten new ETFs have generated net inflows of approximately $2.8 billion.
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Some people are still in shock, though, having lost a lot of money to failed exchanges, failed loan schemes, and pump-and-dump altcoins. Hedge funds that are contemplating investing in cryptocurrency now have to provide US regulators with additional information in a secret manner.
And lastly,
This is what Garfield is currently passionate about.
After rising and falling together in the latter half of last year, bonds and stocks are again diverging in the US. This adds credence to the theory that the Federal Reserve will succeed in providing a soft landing for the economy this year as inflation declines and the labour market stays reasonably robust, preventing a spike in unemployment while averting a wage-price crisis.
With the last earnings season coming in stronger than many had anticipated, the cessation of interest rate hikes and the assurance that the next step will be lower appear to be more than sufficient to support advances in equities.
Bonds are in a rut because investors in the asset class had clear expectations for swift and significant rate reduction, which now appear to be completely off the table. In the absence of a clear indication from Fed policymakers that they are now willing to ease policy sooner, even a significant negative surprise for inflation data later on Tuesday may not be enough to start a long-lasting rally. It would appear improbable given the economy’s resiliency to date, which means slower inflation is simply a necessary component of rate cuts rather than being sufficient in and of itself to trigger them.
