SignalPlus Macro Research Report: Fed Pauses Rate Hikes, Core Inflation Trends Slow Down.

23-06-14 16:50

Read this article in 25 Minutes

AI summary

View the summary

Original Title: "SignalPlus Macro Research Report (20230614)"

Original Source: SignalPlus Chinese

Dear friends, welcome to SignalPlus Macro Research Report. SignalPlus Macro Research Report updates macro market information for you every day and shares our observations and opinions on macro trends. Please subscribe to keep up with the latest market dynamics with us.

The overall CPI in the United States increased slightly by 0.1% in May, while the core CPI increased by 0.436% month-on-month (unrounded). The overall index fell to 4.0% year-on-year, the lowest since March 2021, while the core index growth also slowed to 5.3%, the lowest since November 2021, but still far above the Federal Reserve's target value. Energy prices fell 3.6% (down 11.7% year-on-year) in that month, which was the main reason for the overall slowdown in CPI growth, while housing inflation remained strong, rising 0.5% for the third consecutive month.

The market is trying to find reasons from the data to prove that the Fed's pause in raising interest rates is reasonable, including overall inflation below expectations, slowing core inflation trends, and weak inflation outside of housing. Initially, US bond yields fell due to overall CPI falling short of expectations, but subsequent deep analysis of the components of inflation (owner's equivalent rent increased by 0.52% MoM, and implied PCE pass-through prices increased by 0.4% MoM), coupled with a significant increase in UK yields (2-year +26bp, with a probability of about 15% for the Bank of England to raise interest rates by 50 basis points next week), pushed the US bond yield curve up by more than 10 basis points in the end.

As for today's Fed meeting, almost all expectations of rate cuts before the end of the year have been excluded from the forward rate curve. The pricing of the federal funds rate from November to December has risen from around 4.5% to about 5.2% in just one month. However, the market still generally expects the Fed to pause its rate hikes at today's meeting, with only about a 10% chance of a 25 basis point rate hike. However, the market expects the possibility of a rate hike by the FOMC in July to be over 50%.

Some key points to focus on in today's meeting:

Will there be a rate hike? Based on historical experience, the Federal Reserve has never tightened policy when the market probability is less than 65%.

SEP (Summary of Economic Projections) and changes in dot plots, how to interpret the difference between "skipping rate hikes" and "stopping rate hikes".

Powell will express his arguments verbally at the press conference.

This time, how many attendees hold opposing views on the interest rate decision (if any)?

The stock market is following its usual path, and the stock market is satisfied with its dovish interpretation of CPI, with the US stock market rising in a straight line for the day. In addition, the People's Bank of China lowered the open market operation interest rate by 10 basis points, shocking the commodity market, with oil prices rising by 3.5% and copper prices rising by 2.2%. Among all the sectors of SPX, the performance of raw materials and industrial sectors is the most prominent.

In addition, as a sign of retail investors' enthusiasm returning, the most popular meme stocks on old Reddit have performed very well, rising nearly 15% since June, easily outperforming the SPX index, which has already performed very well; if the FOMC unexpectedly turns dovish, it may further push the market's frenzy to new heights.

In the field of cryptocurrency, the first hearing between the US SEC and Binance seems to be more optimistic for the latter. Judge Berman of the district court refused to enforce the SEC's request for asset freeze. Instead, the judge urged both parties to negotiate a possible compromise agreement, believing that they are "closer to reaching an agreement than the language in the court documents" and requested an update by Thursday. In addition, the judge expressed doubts about the effectiveness and complexity of the SEC's use of enforcement power to regulate the entire cryptocurrency field. However, she also said that Binance's lawyers were surprised by the SEC's allegations, which sounded "a bit false", as the issue of whether cryptocurrencies should be classified as securities has been discussed for many years.

In addition, there have been new developments in the SEC and Ripple case. The unsealed "Hinman document" shows that according to former SEC director William Hinman's internal communication records in 2018, he explicitly stated that ETH is not a security.

"Based on my understanding of the current state of ETH, the Ethereum network, and its decentralized structure, the current pricing and sale of Ether does not constitute securities trading."

"Attached to this letter is the speech draft I mentioned, which indicates that we believe there is no need to regulate the ETH currently provided as a security," wrote Hinman in a publicly released email.

In addition, the unsealed documents also show that SEC editors have edited Hinman's speech because they were concerned that his comments could weaken the SEC's legal position.

"Even if the sentence contains the word 'but', it seems that this will make it difficult for the SEC to take a different stance on Ether in the future," the editor wrote in the document; "In addition, the rest of this paragraph strongly suggests that this view applies to Ether."

Although this may not change the US regulatory authorities' efforts to combat money laundering in the cryptocurrency industry, it is still necessary to observe the changes in regulatory attitudes towards digital assets. At the same time, the fundamental argument for decentralization can also be validated from a rational perspective. When our thinking is free from bias and political purposes, we can examine this issue more objectively.

The "Option King Battle" jointly organized by OKX and SignalPlus has begun! Sign up now to participate and don't miss the chance to win up to 115,000 USDT in prizes!

Registration link: https://t.signalplus.com/competition-okx? locale=zh-CN