📈 Rates on the move: 25bp cut incoming?

Good Morning!

The tech world's darling, Nvidia, is sparking a rally in Asian markets today, while all eyes are on the European Central Bank's impending rate decision. Despite the excitement, the Fed's next move is still keeping investors on their toes. Yesterday's U.S. inflation report threw cold water on hopes for a hefty half-point rate cut, with core CPI inching up more than expected. Now, a modest 25 basis point trim seems more likely. Meanwhile, the yen's retreat gave Japan's Nikkei a 3% boost, even as a Bank of Japan official hinted at future rate hikes. Europe's looking perky too, with futures pointing north. As for the ECB, a quarter-point cut is in the bag, but October and December? That's still anyone's guess.

In today’s email:

• Inflation: CPI largely inline with expectations. 25bp rate cut looking most likely

• Bitcoin: Bitcoin back above $58k, ready to rocket higher?

• SWIFT: New global infrastructure for RWA

• Gold: Set to reach $4800/oz soon?

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THE BIG IDEA

US inflation hits 3-year low, potentially paving the way for Fed rate cuts and shaping the presidential race

The inflation rollercoaster is finally slowing down. August's numbers are in, and it looks like we're coasting back to normalcy. Consumer prices rose just 2.5% from last year - the smallest bump since early 2021. That's music to the Fed's ears as they eye their 2% target.

But before we break out the champagne, let's dive into the details. Core inflation (that's without those pesky food and energy prices) is still hanging tough at 3.2%. It's like that party guest who just won't take the hint to leave.

Now, what's driving this downward trend? Gas prices are playing nice, dropping 10.6% from last year. And your grocery bill? It's practically frozen in time, with just a 0.9% increase over 12 months. But don't get too excited - we're still paying more than we did pre-pandemic.

Car Insurance & Housing costs are the party poopers here, rising 5.2% year-over-year

But there's hope on the horizon. New lease prices are cooling off, which should eventually trickle down to the government's data.

All this good news has the Fed feeling frisky. They're eyeing interest rate cuts, potentially starting next week. It's like they're finally ready to loosen their tight grip on the economy's leash.

But let's not forget the political circus. This inflation saga is center stage in the presidential race. Trump's throwing jabs about price spikes, while Harris is pitching housing subsidies and grocery price-gouging bans.

Looking ahead, things are looking up. Oil prices are down, wage growth is moderating, and even Powell's sounding optimistic. But as any seasoned shopper knows, it's best to keep one eye on those price tags. After all, in the world of economics, what goes down... well, you know the rest.

MARKETS AT A GLANCE

TOP NEWS

UBS CEO warns against overoptimistic expectations for aggressive Fed rate cuts

Hold your horses, rate cut enthusiasts! UBS CEO Sergio Ermotti thinks we're getting ahead of ourselves on Fed moves. With inflation still playing hard to get, Ermotti's betting on a more modest cut than the market's hoping for. While a soft landing might still be in the cards, thanks to resilient consumers, the inflation battle isn't over yet. Meanwhile, UBS is doubling down on Asia, especially China, despite the economic headwinds. Talk about playing the long game!

ECB faces pressure to cut rates, but economist argues against it due to differing economic conditions

Despite the summer heat and market pressures, the ECB should resist cutting rates. While the Fed and BoE might have room to maneuver, the ECB's already lower rates leave less wiggle room. August's inflation drop, driven by energy prices, doesn't tell the whole story. With core inflation sticky and services inflation creeping up, the ECB needs to maintain its stance to secure the return to target. As Lagarde says, the ECB charts its own course – September's the time to prove it.

China's slowing oil demand growth reshapes global market dynamics

The oil world's spinning on a new axis. China, once the energizer bunny of crude demand, is losing its pep. APPEC conference attendees are grappling with a new reality: slower Chinese growth, aging population, and a green shift. Analysts expect China's oil appetite to grow by a mere 300,000 barrels a day in 2025 – a far cry from its voracious past. While some still see room for growth, most agree: the dragon's fire isn't burning as hot. It's a brave new world for oil traders who've never known a market without China's bullish influence.

CRYPTO

Bitcoin's correlation with gold turns negative as investors favor traditional safe havens

Bitcoin's losing its Midas touch. While gold's hitting record highs above $2,500, BTC's down 22% from its March peak. The crypto crowd's sweating as their digital gold decouples from the real deal. Analysts are waving red flags, pointing to bearish indicators and waning long-term holder confidence. But don't write off BTC just yet – some chart wizards see a potential upturn after October. For now, though, it seems investors prefer their safe havens old school and shiny.

WeWork founder's crypto startup refunds investors after failed token launch

Talk about a flowchart gone wrong! Adam Neumann's Flowcarbon is hitting reverse, refunding investors after its "Goddess Nature Token" failed to materialize. Despite backing from big names like Andreessen Horowitz, the carbon credit platform cited market woes and registry resistance for the no-show. While Flowcarbon's still in the climate game, this token misfire shows even WeWork's ex-CEO can't always work wonders in crypto. Looks like Mother Nature wasn't ready for her blockchain debut just yet!

Swift Unveils Global Infrastructure for Tokenized Asset Transfers

Swift announced a new global infrastructure to streamline tokenized asset transfers, addressing interoperability challenges across different technologies and regulatory environments. The initiative will test multi-ledger Delivery-versus-Payment (DvP) and Payment-versus-Payment (PvP) transactions, enabling real-time exchanges on its platform. Swift aims to connect traditional and emerging assets, including cryptocurrencies, central bank digital currencies (CBDCs), and stablecoins. The move is expected to enhance inclusivity and interoperability in global financial markets, with a focus on the $30 trillion real-world asset market projected by 2034.

Spot Bitcoin ETFs Experience $43 Million in Outflows

U.S. spot Bitcoin ETFs posted $43.97 million in net outflows on Wednesday, ending a two-day inflow streak. Ark Invest and 21Shares' ARKB led the outflows with $54.03 million, while Grayscale's GBTC saw $4.59 million in outflows. Meanwhile, Fidelity’s FBTC led inflows at $12.57 million. Spot Ethereum ETFs also recorded net outflows of $542,870. The market is reacting to stronger U.S. economic data and the upcoming Fed meeting, which may result in a rate cut.

GOLD

Gold on Track to Reach $4,800, Says Incrementum’s Ronald-Peter Stoeferle

Ronald-Peter Stoeferle, managing partner at Incrementum AG, believes gold is set to hit $4,800, with its current rally still having momentum. Speaking at the 2024 Precious Metals Summit in Colorado, he noted that gold is climbing steadily without major retracements, currently holding above $2,500 despite a 20% rally this year. While gold continues to rise, other commodities like silver, oil, copper, and iron ore have underperformed.

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