Anticipation Builds: Can the Upcoming CPI Data Shift Market Dynamics?

1. Digital Asset Market: Bitcoin whales may be intentionally pushing the price down in order to enter long positions when the US CPI report is released on April 10, potentially leveraging a "hot" report to create a spike in prices. They have shown similar behavior before in response to economic data releases.  Bitcoin (BTC) fell below $69,000 following its Monday rally, with the price slipping to $68,580. This decline also affected other cryptocurrencies, including Ether (ETH), solana (SOL), and dogecoin (DOGE), which saw drops of 4% to 7%. As a result, almost $200 million worth of leveraged derivatives trading positions were liquidated, with the majority being long positions. While some analysts predicted higher prices for bitcoin after Monday's breakout, technical analysis suggests that the price may continue to consolidate before attempting to reach new highs.

2. Macro Economics: In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon discusses the potential impact of artificial intelligence on society and the bank's own operations. He also expresses concerns about inflation, geopolitical risks, and the breakdown of collaboration between banks and regulators. He highlights the importance of national security and suggests greater user control over social media feeds. Dimon also provides an update on the bank's acquisition of First Republic and its anticipated benefits. Overall, he presents a cautious outlook on current market conditions and emphasizes the need for constant adaptation and monitoring of risks in the financial industry.
   

   The Federal Reserve will release the Consumer Price Index (CPI) for March on Wednesday, which is a key metric in the Fed's decision on interest rates. It is expected to show headline inflation of 3.4%, driven by higher energy costs. On a core basis, which excludes food and energy prices, inflation is expected to have risen 3.7% over last year, a slight slowdown from February. The Bank of America and Goldman Sachs economists predict a cooling off in core inflation going forward, due to declines in core goods and services prices. Hopefully, this will provide confidence to the Fed.

3. Equities: US stocks closed mixed on Tuesday as investors awaited a key inflation report. The S&P 500 and Dow Jones Industrial Average were relatively flat while the Nasdaq Composite edged up. The CPI report, to be released on Wednesday, is expected to shed light on the path of interest rates. Investors have become less convinced that the Federal Reserve will make three rate cuts this year and are closely watching for signs of cooling inflation. Rising Treasury yields and metal prices have also caused concern. The start of the first quarter earnings season on Friday is another potential catalyst for the market.
   

4. The Fed and US Treasury: The upcoming consumer price index report, due on Wednesday at 8:30 a.m. ET,  is expected to show that inflation remains high, which is worrisome for consumers, investors, and Federal Reserve officials who want to see a slowdown in price increases. It is anticipated that both the overall and core rates will increase by 0.3%, putting them at 3.4% and 3.7% respectively, which is still far from the Fed's 2% target.
   

   While the wider market is less optimistic on rate cuts, and the implied probability of just one cut in June is a little over 50%,  State Street Global Advisors believes that the Federal Reserve will cut interest rates by 50 basis points in June, and a total of 150 basis points by the end of the year. The firm believes that the economy is not as strong as it seems and that inflation may push the Fed to cut rates in larger chunks. They also attribute the timing of the rate cuts to the upcoming US presidential election. 

5. Geopolitical: While the West is focused on Ukraine, and Israel is doing its best to pull the US in a war with Iran, China's president Xi Jinping is building a new world order through various initiatives and organizations, with the goal of displacing the current U.S.-led system. These initiatives claim to offer a non-Western path to development, but they are seen as camouflage for Beijing's own hegemonic ambitions. However, there is a deficit of both supply and demand for China's leadership in the global south, as countries are wary of Chinese aggression and bullying. While China's initiatives seem appealing on the surface, they often come with hidden costs and risks of offending China. Ultimately, many countries may prefer the protection of U.S. alliances over China's vague promises of noninterference and respect for sovereignty. In either case, we are in uncharted territory. 

View from our desk

The market has entered a period of consolidation, buoyed by a surge in liquidity and signs of maturity, even as we brace for the CPI announcement. This scenario mirrors the recent dynamics where Bitcoin steadied at the $65K mark, supported by a robust backing at this level, hinting at a potential plateau in price movement. Much like the digital currency's resilience in the face of a strengthening USD, the market's current stability, amidst anticipations of significant economic announcements, underscores an underlying confidence against further downturns, setting the stage for a possible equilibrium in the coming weeks.

Amidst this backdrop, Jamie Dimon's letter emerged as an unexpected beacon of reflection, especially his discourse on AI and geopolitical strains, resonating deeply with our perspective on the global stage's unpredictability. This sentiment reflects the market's recent sensitivity to geopolitical events and economic indicators, akin to the impact of the Iranian embassy bombing on volatility levels. Dimon's cautionary stance on the volatility and the unforeseen challenges in global politics mirrors the precarious balance markets maintain in the face of geopolitical upheavals and economic data revelations.

This evolving narrative, enriched by insights from Dimon's commentary and recent market movements, highlights the nuanced dance between investor sentiment, geopolitical events, and economic indicators. Just as Bitcoin's valuation found a foothold despite macroeconomic shifts, the broader financial landscape is navigating through a confluence of factors, from CPI and PMI data to geopolitical tensions, painting a complex picture of anticipation and strategic positioning. This interplay, much like the intricate dynamics influencing Bitcoin's price, underscores a broader theme of cautious optimism and strategic vigilance in the face of unfolding economic and political landscapes.

For those interested in the full report, it’s worth a quick read: Jamie Dimon’s Letter to Shareholders

Happy Trading!

The 1Konto Team

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