🔥 CPI: Get Ready for Market Mayhem!

Good Morning!

The economic compass is spinning wildly. China's still exporting disinflation, with producer prices dropping 1.8% against a 1.4% forecast. Meanwhile, the U.S. CPI report looms large, potentially dipping to 2.6% - the lowest since March 2021. This global economic puzzle has markets on edge, with the Nikkei sliding and S&P futures cautiously rebounding. All eyes are on the Fed's next move, as rate cut speculations heat up amidst mixed labor market signals.

In today’s email:

• FedWatch: 50bps cutting looking increasingly likely. CPI numbers in focus this week.

• Bitcoin: Bitcoin around $55k, turning a corner soon?

• Tether: Getting into farming!

• Gold: Struggling to stay above $2500

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THE BIG IDEA

The U.S. economy shows clear signs of an impending recession

Driven by cooling labor markets, tighter financial conditions, and decreasing consumer spending, uncertainty looms over the Fed's rate cut decision. The debate is whether we get a 25bps or 50bps cut in response to slowing job growth and weakening economic indicators.

The signs are all there: the U.S. economy is flirting with recession. Labor markets, once scorching hot, are cooling off. The job openings rate is now back to pre-pandemic levels, and unemployment is creeping up as finding new work becomes tougher. Consumer wallets are tightening too; the savings rate is down to 2.9%, and low-income bank deposits have slipped below 2019 levels. With rising loan delinquencies, consumer confidence is waning, hinting that spending will only soften further.

Housing markets aren’t looking much better—home sales are slumping, and homebuilder confidence is at its lowest this year

Manufacturing activity continues to weaken, and commercial real estate is also feeling the strain, with rising office vacancy rates and mounting defaults across sectors. Even if the Federal Reserve cuts rates, don’t expect a quick fix. Historically, recessions have followed rate cuts, and any impact of easing will be delayed.

Amid this uncertainty, markets are abuzz with speculation: will the Fed opt for a 25bps or 50bps cut? August job numbers were weaker than expected, adding only 142k jobs, far below the forecast of 165k, with additional downward revisions clouding the picture. A deeper dive reveals a trend toward lower-paid, less secure jobs in sectors like leisure, hospitality, and healthcare, while well-paid, full-time positions in manufacturing and IT dwindle.

The big takeaway? If you were betting on the Fed’s next move, keep in mind the debate remains unresolved. Yet, with job market weakness set to intensify, there’s a strong case for a more aggressive 50bps cut to get ahead of the curve.

MARKETS AT A GLANCE

TOP NEWS

Yen carry trade unwinding poses risk of market volatility, mirroring August's sell-off

The yen's strengthening act might just be warming up. As U.S. yields and the dollar trend downward, we're seeing a potential replay of August's market drama. The yen carry trade - that $4 trillion behemoth - is unwinding, and it's got traders on edge. With September's notorious volatility and a shaky U.S. economy, we might be in for another wild ride. Keep your eyes peeled on equity prices; they're the canary in this financial coal mine.

Oil prices rebound on Gulf Coast storm threat and recovery from U.S. jobs data selloff

Black gold's making waves again. A brewing hurricane in the Gulf Coast and a rebound from Friday's job data blues have oil prices surging. WTI and Brent crude futures are riding high, up over 1% each. It's not all smooth sailing though – China's economic sluggishness and weak Asian refining margins are throwing some choppy waters into the mix. Keep an eye on that weather system; it could stir up more than just waves in the oil market.

Nvidia's $406 billion value drop showcases extreme market volatility, outpacing even Bitcoin's fluctuations

Nvidia just gave us a masterclass in market whiplash, shedding a cool $406 billion faster than you can say "AI bubble." This chip giant's volatility is now making Bitcoin look like a sleepy savings account. Despite the stomach-churning drop, Nvidia's still up 100% this year. But with antitrust probes and forecast jitters in the mix, even the mighty can stumble. Is this a buying opportunity or a canary in the AI coal mine? The tech world's watching with bated breath.

CRYPTO

Arthur Hayes, former CEO of BitMEX, predicts a Bitcoin rally after closing his short position

He initially expected a dip below $50,000, but now foresees a rise next week, fueled by potential liquidity injections from the Federal Reserve amid economic weakness. Hayes’ prediction aligns with a possible increase in U.S. money supply, historically linked to Bitcoin bull cycles. Despite recent downturns, Bitcoin's pattern follows past halving cycles.

Tether has invested $102 million to acquire a 9.8% stake in Adecoagro, a major South American agricultural firm, citing land as a "crucial asset class."

The investment aligns with Tether’s strategy to diversify beyond crypto, complementing its holdings in Bitcoin and gold. Tether aims to generate long-term yield from scarce assets like land, which offer stability during geopolitical instability. This move follows Tether’s plans to expand and reorganize into four divisions, including Tether Finance and Tether Data.

Coinbase secured a partial win in its legal battle with the SEC

A federal judge ordered the regulator to produce documents related to the Howey Test's application to crypto tokens. However, the judge limited the scope of Coinbase’s subpoena, excluding present and former commissioners and allowing some SEC redactions. Coinbase claims this discovery is crucial for its defense in the ongoing case, where the SEC alleges Coinbase operated as an unregistered exchange, broker, and clearing agency.

Bitcoin is viewed as “grossly undervalued” by traders ahead of a busy week of U.S. economic releases and the Trump-Harris debate

Despite low weekend trading activity, analysts at Presto Research argue that Bitcoin’s record-high network security makes it an attractive buy. Upcoming events, including CPI and PPI data and the Presidential debate, could drive market volatility, with both candidates eyeing pro-crypto policies. Watch for potential price moves amid these key economic and political developments.

GOLD

Gold (XAU/USD) struggles to break the $2,500 resistance

Despite geopolitical tensions bolstering its safe-haven appeal, gold's struggling to make a sustained break above $2500. With prices currently around $2,486, the market faces key resistance at $2,500. A breakthrough could push it towards $2,511, while support levels are at $2,471 and $2,451. The bearish trend persists unless gold closes above $2,500, suggesting traders should watch these levels closely for potential movements.

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