🔥 Fed's Secret Eyes on Trump: What's the Next Surprise?

Good Morning!

The British bond scene is turning heads for all the wrong reasons, as yields on 30-year gilts just shot up to levels we haven't seen since 1998. A hefty 20-basis point surge this week has analysts drawing uncomfortable parallels to the 2022 Liz Truss mini-budget fiasco, though this time there's no obvious trigger for the sell-off. Fed rate cut expectations have now shrunk to just 41 basis points for the year, down from the previously hinted 50. With Wall Street taking a breather for a market holiday and a parade of central bank speakers on deck (including BOE's Breeden and five Fed officials), all eyes are on tomorrow's U.S. jobs report for the next market-moving catalyst.

In today’s email:

• FedWatch: Fed watching Trump with “concerned curiosity”

• Bitcoin: Is it headed to $73K before legging higher?

• GBPUSD: Traders betting on a 7% plunge to 1.15

• Gold: Still holding steady

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THE BIG IDEA

Markets reel as Fed hawks circle, Bitcoin stumbles, and bond yields surge amid Trump transition jitters - a perfect storm of macro uncertainty hits global markets

Well, that's one way to kick off 2025. The markets are serving up a three-course meal of uncertainty, and nobody's particularly enjoying the taste. Bitcoin just took a nosedive below $93K, wiping out its New Year gains faster than you can say "volatility." The culprit? A spicy cocktail of macro factors that has traders reaching for the antacids.

At the heart of this market drama is the Federal Reserve, which just dropped some rather interesting meeting minutes. They're eyeing Trump's upcoming presidency with what we might politely call "concerned curiosity." The Fed's particularly worried about how his planned tariffs and immigration policies might fan the inflation flames they've been trying so hard to extinguish.

Speaking of inflation worries, the British bond market is having what we'll charitably call a moment

Yields on 30-year gilts have shot up to levels not seen since 1998, triggering some uncomfortable flashbacks to the Liz Truss mini-budget saga of 2022. Germany's not feeling much better, with bund yields hitting five-month highs.

The Fed's now pumping the brakes on rate cut expectations, trimming them from four to just two for 2025. Markets are even more skeptical, pricing in a mere 41 basis points of cuts. No wonder crypto miners like TeraWulf and Bitdeer are seeing red, down over 5%.

Looking ahead, the market's got more plot twists than a Netflix series. Trump's January 20th inauguration looms large, and Friday's jobs report could either calm nerves or spark another round of volatility. Some analysts, like QCP, are betting on a Bitcoin bounce as the inauguration approaches, but with the current market mood, that's about as certain as predicting the weather a month out.

MARKETS AT A GLANCE

TOP NEWS

European markets waver amid global inflation anxiety and Fed's hawkish stance, while Asian markets tumble and U.S. markets pause for Carter's funeral

European markets are playing it cool – but barely – as inflation jitters ripple through global trading floors. The Stoxx 600's hovering at the flatline, with retail stocks taking a 1.47% hit while miners dig out a 1.33% gain. Meanwhile, regional powerhouses can't decide which way to swing: FTSE 100's up 0.46%, but DAX is nursing a 0.12% dip.

Foreign investors cash out of Japanese stocks after stellar 2024 gains, while pivoting to bonds amid market holiday risks

After riding the Nikkei's impressive 19.22% surge in 2024, foreign investors are taking some chips off the table, pulling out ¥74 billion ($468.30M) in the first week of 2025. They're not completely bearish though – just shifting gears by scooping up ¥227.5 billion in Japanese bonds, breaking a three-week selling streak.

Pound options trading hits highest volume since 2022's Truss crisis as traders rush to hedge against sterling weakness

Sterling's having a serious case of déjà vu. Options trading exploded to £13.7 billion on Tuesday – the busiest day since 2022's mini-budget chaos. Traders are loading up on downside protection, with some betting on a 7% plunge to 1.15. With gilt yields soaring and inflation fears mounting, the market's getting flashbacks to those nail-biting Truss days

CRYPTO

Bitcoin's recent slide from $100K has analysts plotting potential bottom targets, with most eyeing $90K as immediate support and some warning of deeper drops

The crypto heavyweight's caught in a downward spiral, shedding 8.5% in just four days. While many analysts see $90K as the next pit stop for a potential bounce, some technical signals paint a more bearish picture. Veteran trader Peter Brandt's spotted a head-and-shoulders pattern that could push BTC down to $73K, near its previous all-time high.

Fidelity Digital Assets predicts 2025 will mark a watershed moment for Bitcoin adoption as nations and central banks eye strategic positions amid global economic pressures

Big players might be joining the Bitcoin game in 2025, with Fidelity predicting nations and central banks will start stacking sats. Trump and Sen. Lummis are pushing for U.S. Bitcoin reserves, while the proposed Bitcoin Act could trigger a domino effect of national adoption. Current government holdings? Mostly from criminal seizures, but that might change as countries start buying on the down-low.

Fidelity: Bitcoin Nearing Mass Adoption, Investors Are Still Early

Fidelity’s 2025 Look Ahead report says Bitcoin is transitioning from speculation to mainstream adoption, driven by corporate and nation-state interest. Drawing on Carlota Perez’s theories, Fidelity sees digital assets reshaping industries like railroads and oil once did. While the speculative frenzy is over, the report emphasizes that the adoption journey is just beginning.

U.S. Entities Lead Bitcoin Holdings Amid Trump’s Crypto Push

U.S. entities now hold 65% more Bitcoin reserves than their offshore counterparts, fueled by Trump’s pro-Bitcoin policies and the rise of U.S.-based Bitcoin ETFs. With MicroStrategy’s strategic purchases and discussions of a national Bitcoin reserve, global competition may intensify. Critics argue Bitcoin investments lack productivity benefits.

GOLD

Gold Holds Steady Amid Fed Uncertainty and Key Jobs Data Focus

Gold prices hovered around $2,662 as traders anticipated U.S. jobs data that may shape the Fed’s rate-cut trajectory. While slower hiring hints at easing, inflation risks persist. Last year’s 27% surge in gold faces tempered optimism, with Goldman Sachs delaying its $3,000 target to 2026. Safe-haven demand remains strong amid geopolitical tensions.

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