🚨 CPI Today: Chaos or Calm?

Good Morning!

Last night's presidential showdown between Donald Trump and Kamala Harris had more zingers than a stand-up comedy special, but left investors scratching their heads on policy specifics. Asian markets dipped their toes in red ink, while US futures looked as wobbly as a politician's promise. The dollar took a backseat, perhaps exhausted from all the debate name-calling. Now, all eyes are on today's US inflation report. It's like waiting for exam results, but for the economy. The Fed's been playing coy about rate cuts, but whispers in the market suggest a 33% chance of a hefty 50 basis point slash next week.

In today’s email:

• FedWatch: Critical CPI numbers out today

• Bitcoin: Bitcoin around $57k, all eyes on CPI

• Inflation: Volatility likely to persist

• Gold: Rallying as rate cuts near

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THE BIG IDEA

Markets react to US presidential debate and upcoming economic data, with stocks falling and the yen surging

The financial world's attention is split between political theater and economic data today. Last night's Trump-Harris debate was more sizzle than steak on policy details, but it's left markets as jittery as a caffeine addict on their fourth espresso.

Asian markets took a nosedive, with Japan's Nikkei plunging to a 7-month low. U.S. and European futures are looking about as appetizing as day-old sushi. The real showstopper? Taylor Swift's post-debate endorsement of Harris, which sent social media into a tizzy and nudged betting markets in the VP's favor.

But let's not forget the main event: today's U.S. inflation report

It's like waiting for your crush to text back – everyone's on edge. The Fed's been playing hard to get with rate cuts, but whispers in the market suggest a one-in-three chance of a juicy 50 basis point slash next week.

Meanwhile, the yen's flexing harder than a bodybuilder at the beach, surging to eight-month highs. Why? Bank of Japan's Junko Nakagawa hinted at more rate hikes, sending currency traders into a frenzy.

Oil's having a rough time, tumbling like a rookie skateboarder. It's down nearly 20% this quarter, as fears of a global economic slowdown cast a shadow over demand.

The bond market's sending signals too, with global yields hitting two-year lows. It's like the financial world's magic 8-ball, and right now it's saying "outlook not so good" for growth.

So, buckle up, between political plot twists, economic data drops, and central bank chess moves, we're in for a financial rollercoaster that would make even the most seasoned trader reach for the motion sickness pills!

MARKETS AT A GLANCE

TOP NEWS

Treasury yields dip as markets await crucial inflation data before the Fed meeting

The bond market's holding its breath. Treasury yields took a nosedive Tuesday, with the 10-year and 2-year both slipping about 5 basis points. All eyes are on Wednesday's CPI report – the last inflation hurrah before the Fed's big show next week. The million-dollar question: Will we see a 25 or 50 basis point rate cut? The suspense is killing us!

Economist warns that inflation volatility is likely to persist, challenging market expectations of stability

Don't get too cozy with that stable inflation dream. T. Rowe Price's Tomasz Wieladek is raining on our low-volatility parade. Despite market optimism, he warns that inflation's wild ride isn't over. Blame it on tricky central bank calibration, jumpy expectations, tight labor markets, and globalisation's retreat. Throw in climate change and AI energy demands, and you've got a recipe for continued inflation drama.

Swiss franc's surge prompts calls for a larger-than-expected rate cut by the Swiss National Bank

The Swiss franc's flexing so hard, it's making economists sweat. As it hits a near-decade high, some are betting the Swiss National Bank might go big with a 50 basis point rate cut this month. Why? The muscular franc's squeezing exports and keeping inflation in check. While most still expect a modest 25 point trim, the odds of a supersized slice are climbing faster than a mountaineer on the Matterhorn.

CRYPTO

Bitcoin eyes $58K as crypto markets show signs of recovery and potential for short squeezes

Crypto's bouncing back like a digital rubber ball. Bitcoin's flirting with $58K, up nearly 10% from Friday's dip. K33 Research spots a rare bullish signal: negative funding rates for perpetual swaps. Historically, this has led to an average 79% return over 90 days. With shorts piling in, we might see some epic short squeezes.

First US Congressional hearing on DeFi reveals deep partisan divide over crypto regulation

Capitol Hill's first DeFi rodeo was interesting to say the least. Republicans championed financial freedom, while Democrats cried foul over crime and tax evasion. Republican French Hill dreamed of protest-proof bank accounts, while Democrat Brad Sherman saw only billionaire tax dodgers. Witnesses sparred over regulation, with crypto advocates pushing for clearer guidelines and critics demanding stricter oversight. It's clear: When it comes to DeFi, Washington's as divided as a crypto wallet after a hack!

Harris-Trump Debate Skips Cryptocurrency, but Issue Remains Key in Election

The first presidential debate between Kamala Harris and Donald Trump ended without any mention of cryptocurrency, despite its importance in the 2024 U.S. election. Trump has positioned himself as pro-crypto, promising to end what he calls an “unlawful crackdown” on the industry. Harris has been reaching out to crypto stakeholders, with her team looking to better understand the sector’s dynamics and concerns.

State Street and Galaxy Digital Launch New Crypto ETFs

State Street Global Advisors and Galaxy Asset Management have launched three new crypto-related ETFs: DECO, HECO, and TEKX. These funds provide exposure to digital assets, blockchain, and AI. DECO focuses on companies like Fidelity’s Bitcoin ETF, Visa, and Meta. HECO includes volatility management strategies, while TEKX targets disruptive tech firms. The initiative highlights the transformative potential of digital assets.

GOLD

Gold Rallies as Fed Rate Cut Nears

Gold prices rallied for the second day as investors anticipate a potential Federal Reserve rate cut at the September 18 FOMC meeting. Fed officials, including Chair Jerome Powell, have hinted at policy easing to normalize rates, which could favor gold by boosting its appeal as a non-yielding asset. Market attention now shifts to the August CPI report, expected to show easing inflation, which may further support gold prices.

DAILY ECONOMIC CALENDAR (ET)

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