SignalPlus Macro Analysis Special Edition: Asymmetric

After three consecutive inflation data exceeded expectations, the CPI data released on Wednesday was generally in line with expectations. This result is enough to stimulate another large-scale rebound in risk markets. Taking stock of market performance:

• SPX index reached a new high

• US 1y1y forward interest rates experienced the largest single-day drop since early January

• 2025 Fed Funds futures are priced down 25 basis points from April highs (equivalent to a rate cut)

• USD Index DXY hits largest level so far this year Single-day decline

• Cross-asset volatility (FX, equities, rates) retreats to mid-term and/or all-time lows

##Will the Federal Reserve cut interest rates as soon as possible? Federal funds futures in June show only a 5% chance of a rate cut, and only 30% in July. Even in September, the chance of a rate cut is only about 64%, so what are you excited about?

#As we mentioned earlier, the Fed has shifted to a completely unbalanced stance, and as long as inflation does not re-accelerate, even if inflationary pressures persist, It could also be tolerated, while any signs of weakness in the job market would be seen as a driver for policy easing. Therefore, although headline inflation and core inflation are still above the Fed's 3.6% and 3.4% targets respectively, the market is worried about a re-acceleration of prices, which did not happen last month, which is consistent with the Fed's return to "watch". "Easy time" theme, because the two contents of "slowing job market" and "high but tolerable inflation" are being confirmed one by one.

Back to the CPI data itself, the core CPI in April increased by 0.29% month-on-month. After exceeding expectations for three consecutive months, the data this time was only Slightly lower than market expectations, the weakness mainly came from falling commodity prices and controlled growth in housing prices and owner-equivalent rents. Core services inflation, excluding housing, rose 0.42% month-on-month, broadly in line with expectations.

After the release of CPI/PPI, Wall Street expects core PCE in April to increase by about 0.24% month-on-month, heading towards an annualized level of 2% and the Fed’s comfort zone. Traders are optimistic about inflation in the second half of the year. Still confident that it will continue to fall.

On the other hand, retail sales data softened sharply in April, with broad-based weakness across different spending categories. Retail sales were flat month-on-month, missing consensus expectations for a 0.4%-0.5% month-on-month increase, and control group spending fell 0.3% month-on-month, with the previous value also revised downwards. General merchandise and even non-store sales posted their biggest declines since the first quarter of 2023.

The retail sales data missed expectations and continued a recent string of weak consumer data, including rising credit card and auto loan delinquencies, the depletion of accumulated excess savings and a deterioration in the job market. While it’s too early to predict a major economic slowdown, we appear to be approaching a turning point in economic growth. Are high interest rates finally starting to erode the U.S. economy?

As usual, the market is willing to ignore any risks of economic slowdown and focus only on the Fed's easing policy for the time being. As a reminder, while the market is very forward-looking and good at incorporating all available information into pricing, be aware that the market is also not that forward-looking. Enjoy the current party for a while!

On the cryptocurrency front, BTC prices continue to be influenced by overall stock sentiment, with prices breaking out of this month’s highs and back to April’s peak of around $67,000. ETF inflows have also been very good, with $300 million in new inflows yesterday following the CPI announcement, and even GBTC saw net inflows. However, the performance of individual tokens still varies widely, with ETH and some of the top 20 tokens still struggling to recover losses, and the market’s gains are increasingly concentrated in a small group of tokens (BTC, SOL, TON, DOGE). rather than an increase in the overall market.

This situation is expected to continue, and the focus will still be on BTC, the main beneficiary of TradFi capital inflows (13F filings show that some large hedge funds have increasing BTC ETF exposure), and the native token or The FOMO phenomenon of degen tokens will be relatively less during this cycle. Good luck to everyone!

The above is the detailed content of SignalPlus Macro Analysis Special Edition: Asymmetric. For more information, please follow other related articles on the PHP Chinese website!