🏦 Fed's "Hawkish Pause": What's Coming Next?

Good Morning!

The holiday spirit isn't exactly spreading on Wall Street this week. We're staring down a potential government shutdown after Trump-backed spending bill flopped in the House, while the Fed's recent "hawkish cut" sent Treasury yields soaring to May highs. The 10-year yield flirted with 4.60%, jumping nearly 50 basis points in just two weeks. While all this drama unfolds stateside, Trump cranked up the heat on the EU, threatening tariffs unless they boost U.S. oil and gas purchases. European markets didn't take kindly to that – the STOXX 600 slumped to a monthly low, marking its worst week since September. The silver lining? Oil prices dipped below $70, offering a brief respite for inflation watchers.

In today’s email:

• FedWatch: Was Fed signalling a “hawkish pause” the right move?

• Bitcoin: Down to $95K now

• BOJ: Plans to slash bond purchases 

• Gold: Have we hit Peak Gold?

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THE BIG IDEA

The Fed's "hawkish pause" sparked market drama, but November's cooler inflation data suggests Powell might have played his cards right

Talk about a wild ride in the markets! When Jerome Powell dropped his "fewer rate cuts" bombshell last Wednesday, Wall Street threw what can only be described as an epic tantrum. The Dow nosedived over 1,100 points, marking its longest losing streak in half a century, while the S&P 500 logged its worst Fed-day performance since '09. But here's the plot twist – Friday's inflation data suggests the Fed chief might actually be onto something.

November's PCE reading (the Fed's favorite inflation gauge) came in surprisingly chill, with core numbers holding steady at 2.8% year-over-year. The data showed cooling across multiple sectors – from non-housing services to goods prices.

Meanwhile, the political theater in DC added its own spice to the mix, with Trump and Musk tag-teaming to torpedo an initial shutdown-prevention bill

Though Congress eventually pulled through with a last-minute funding deal, it's a preview of the budget battles we're likely to see under the upcoming Trump administration.

Looking ahead, Chicago Fed's Austan Goolsbee is singing a more dovish tune, suggesting rates could "go down a fair amount" over the next 12-18 months. But with Trump's return to the White House looming and questions swirling about how we'll fund those growing deficits, the Fed's cautious stance makes sense. As TS Lombard's Steve Blitz puts it, we're seeing a "slow rebound that's putting a floor on disinflation" – exactly why Powell might be smart to keep his powder dry for now.

Markets eventually found their footing by week's end, with the major indices bouncing back Friday. Sometimes the best moves are the ones that look worst at first glance.

MARKETS AT A GLANCE

TOP NEWS

Hedge funds bet big on dollar-yen surge despite Japan's intervention warnings

Wall Street's high rollers are going all-in on the dollar-yen trade, eyeing potential gains up to 165 despite Tokyo's saber-rattling. Trading volumes exploded to $23 billion post-Fed and BOJ decisions, as hedge funds load up on bullish options for Q1 '25. While Japan's Finance Minister Kato warns against speculation, traders seem convinced the diverging Fed-BOJ paths will keep pushing the pair higher.

Oil markets rebound as cooling US inflation reignites rate cut hopes, despite looming supply concerns

Crude prices found their footing today, with Brent climbing to $73.30 and WTI touching $69.85, as softer US inflation data sparked fresh optimism. While Trump's EU tariff threats and Druzhba pipeline drama added some spice to the mix, Sinopec's prediction of peak Chinese oil demand by 2027 and Macquarie's bearish supply forecast for 2025 are keeping a lid on prices.

Japanese bond market braces for largest supply surge in 10 years amid BOJ's planned pullback

Japan's debt market faces a watershed moment as supply is set to balloon 64% to ¥61 trillion next fiscal year. The surge comes as the BOJ plans to slash bond purchases nearly in half, just as PM Ishiba eyes new spending and inflation concerns linger. While some analysts remain calm, others warn this perfect storm could push 10-year yields above 1.32% by 2026.

CRYPTO

Crypto giant Tether makes a bold move into right-wing media with massive Rumble investment

Tether's flexing its financial muscles again, this time dropping $775 million into conservative-friendly streaming platform Rumble. The deal sent Rumble's shares soaring 44.6% after hours, despite recent market jitters. It's a fascinating marriage of crypto and content – $250 million goes to Rumble's growth plans, while the rest funds a stock buyback at $7.50 per share. For Tether, flush with $2.5B in Q3 profits, it's just another day of strategic expansion.

Trump names crypto-friendly economist Stephan Miran to chair Council of Economic Advisors

President-elect Donald Trump has appointed Stephan Miran, a pro-crypto economist and former Treasury official, as chair of the Council of Economic Advisors. Known for his advocacy for regulatory reform to foster crypto innovation, Miran's appointment aligns with Trump's pledge to make the U.S. a global crypto hub. This follows Trump's selection of other crypto advocates, including Paul Atkins as SEC chair and Bo Hines for a digital assets advisory role.

Marathon Digital warms 80,000 Finnish homes with Bitcoin mining heat recycling

Marathon Digital Holdings now heats 80,000 homes in Finland by repurposing surplus heat from Bitcoin mining, expanding a pilot program launched in June that initially warmed 11,000 homes. Using district heating technology, Marathon channels heat through underground pipelines, aligning with Finland’s climate goals and showcasing the potential of mining heat recycling. This innovation complements Marathon’s renewable energy initiatives, including its recent acquisition of a Texas wind farm.

Metaplanet makes biggest Bitcoin purchase yet, adding 620 BTC to its holdings

Japanese investment firm Metaplanet acquired 619.7 Bitcoin for nearly $60 million, marking its largest purchase since adopting Bitcoin as a treasury strategy in May. This brings the firm's total holdings to 1,762 BTC, valued at $168 million. Metaplanet plans to formalize Bitcoin accumulation as a business line, exploring loans and financial instruments to expand its treasury amid a 2,100% surge in its stock price this year.

GOLD

Global gold production to peak in 2025 before long-term decline, CRU analyst warns

Gold mining is set to hit a historic high of 3,250 tonnes in 2025, then face a prolonged decline due to depleting reserves, lower ore grades, and aging mines, says CRU analyst Oliver Blagden. Despite strong profits and supportive prices, Blagden cautions that insufficient investment in new projects could cut production by 17% by 2030, reshaping global gold markets.

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