📈 CPI Report: Bitcoin's Fate Hinges on Today's News!

Good Morning!

The Reserve Bank of New Zealand shocked markets with a 25 basis point rate cut to 5.25%, its first since 2020. RBNZ chief Adrian Orr quipped, "When facts change, so do we." This move could pressure other banks still battling inflation. Markets are already pricing in another cut by October, sending the kiwi dollar tumbling 1%.

In today’s email:

• Fed Watch: All eyes on CPI today after a cooler-than-expected PPI yesterday

• Bitcoin: Bitcoin back around $60k amidst renewed accumulation

• Nvidia: Best stock of the last 25 years!

• Gold: Prices edging up again

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THE BIG IDEA

The Federal Reserve's policy trajectory remains uncertain, with markets adjusting expectations for rate cuts

After initially pricing in aggressive cuts, including a potential inter-meeting move, markets have moderated their outlook to about 100 basis points of cuts by year-end

ING outlines three potential scenarios:

1. Base case (50% probability): The Fed cuts rates by 50 basis points in September, followed by 25 basis point cuts in November and December. The federal funds rate reaches 3.5% in 2025. This scenario could see EUR/USD trade up to 1.10.

2. Aggressive cuts (35% probability): Concerns about job layoffs prompt more aggressive rate cuts, pushing policy into mildly stimulative territory. This would likely lead to a deeper dollar drop.

3. Stagflation fears (15% probability): Sticky inflation forces the Fed to maintain higher rates, potentially causing a recession. This scenario could see the yield curve re-invert, favoring the dollar against pro-cyclical and emerging market currencies.

Political factors will also influence Fed policy and dollar performance

Per ING, a Trump presidency might support domestic demand growth but keep inflation elevated, making the Fed more cautious about rate cuts. A Harris presidency could provide more scope for looser monetary policy.

The document emphasizes that economic uncertainty may lead to continued market volatility. The Fed's decision-making will be influenced by inflation trends, labor market conditions, and the overall economic outlook. As the situation evolves, market participants should be prepared for potential shifts in Fed policy and corresponding impacts on currency markets and broader economic conditions.

MARKETS AT A GLANCE

TOP NEWS

Economists expect July inflation data to show continued moderation

The July Consumer Price Index (CPI) report, due Wednesday, is expected to show inflation holding steady at 3% year-over-year. Core inflation, excluding food and energy, is forecast to slow to 3.2% from 3.3% in June. Falling used car prices and cooler airfares are likely contributors. With inflation cooling, markets now see a 100% chance of a Fed rate cut in September, debating only the size.

Global financing conditions remain stable despite recent market volatility

Despite a tumultuous sell-off in financial markets, global financing conditions have held steady. The S&P 500 is still 5% below July's peak, but borrowing costs have fallen. U.S. 10-year Treasury yields dropped over 50 basis points since July, benefiting borrowers. However, elevated volatility creates uncertainty, particularly for IPOs and weaker borrowers in the junk bond market.

Investors flock to bonds as recession fears overshadow inflation concerns

Investors are pouring money into bonds as recession fears replace inflation worries. US Treasuries and high-grade debt rallied during recent stock market turmoil. Fund managers see bonds as attractive in a slowing growth, falling inflation environment. Over $66 billion has flowed into fixed-income funds since July, with high-grade corporate debt seeing its longest streak of inflows in four years.

Nvidia leads as top stock performer over past 25 years, with 33.38% annualized returns

Arizona State University research reveals surprising long-term stock market winners. While Altria tops cumulative returns since 1925 at over 265 million percent, Nvidia leads annualized returns for stocks with 20+ year histories at 33.38%. Other top performers include Netflix, Amazon, and Microsoft. The data highlights the power of steady long-term growth over flashier but shorter-lived stocks.

CRYPTO

Bitcoin surges past $60,000 as gold's rally suggests further crypto gains ahead

Bitcoin climbed above $60,000 following positive inflation data, with analysts noting its tendency to lag behind gold's movements by about 3 months. Both assets are top performers in 2024, with Bitcoin leading as the year's best macro asset. The crypto market cap now stands at $2.14 trillion, with Bitcoin dominance at 56.3%. Altcoins also saw gains, led by GMX, THORChain, and Stacks.

Bitcoin investors show renewed accumulation trend, led by long-term holders

Glassnode's latest on-chain report indicates Bitcoin investors are shifting towards holding and accumulating again. The Accumulation Trend Score hit 1.0, its highest value, signaling significant accumulation over the past month. Long-term holders have added 374,000 BTC to their holdings in the last three months. Despite recent market uncertainty, the data suggests a stronger tendency to hold rather than sell. Meanwhile, spot Bitcoin ETFs started the week with inflows, led by ARK 21Shares' ARKB with over $35 million.

Solana memecoin deployer pump.fun surpasses major protocols in daily revenue

Pump.fun, a Solana-based memecoin deployer, has generated $5.3 million in revenue over the past 24 hours, outpacing established blockchain networks like Ethereum and Solana. This revenue exceeds that of the next 24 highest-earning protocols combined. The platform charges a 1% fee on all trades and has recently introduced incentives for successful token launches. Despite criticism for potentially "killing" memecoins due to its low entry barrier, pump.fun aims to provide transparency in token creation and distribution.

Coinbase teases launch of wrapped bitcoin product called cbBTC

Coinbase has hinted at an upcoming launch of a wrapped bitcoin product named cbBTC, potentially competing with BitGo's WBTC. The product could allow holding bitcoin on Ethereum and Layer 2 chains, providing liquidity for users and within Coinbase's Base blockchain. This announcement comes amid changes in WBTC's custody arrangements, with BitGo partnering with BiT Global. The move has raised some security concerns, prompting discussions about WBTC's use as collateral in DeFi protocols.

GOLD

Gold prices edge up after tame U.S. PPI data; focus shifts to upcoming CPI report

Gold prices are slightly higher following a cooler-than-expected U.S. Producer Price Index report, with December gold up $3.90 to $2,507.90. Traders now await Wednesday's Consumer Price Index data, expected to show a 0.2% month-on-month increase. Geopolitical tensions, including potential Iranian attacks on Israel and Ukraine's incursion into Russian territory, are providing some safe-haven support for gold. Technically, gold bulls maintain a firm advantage, while silver bears have the edge in the near term.

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