SignalPlus Macro Analysis: The overall macro environment is strengthening, but the market is still in a struggle.

2024-06-13 17:36

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Original title: "SignalPlus Macro Analysis (20240613): US Economy "Soft Landing"

Original source: SignalPlus

The much-anticipated macro double headline day has finally arrived, and the results are as expected. First, the CPI data was far below expectations, with the core CPI up 0.16% month-on-month (the lowest level since August 2021), far below the market's expectation of 0.3%, of which the "super core CPI" was particularly weak and negative; service spending fell, commodity prices were flat, and housing inflation rose but remained within controllable range. After the CPI was released, Wall Street economists quickly lowered their PCE forecast from 2.8% to 2.6%, moving in the right direction of the Fed's long-term goals.

The macro market reacted sharply to the data, with the US Treasury bull steepening and the 2-year yield falling sharply by 17 basis points, pricing in expectations of a rate cut at the December FOMC meeting as high as 51 basis points. The stock market also saw multiple standard deviation fluctuations, with the SPX and Nasdaq both rising 1.5% to new highs as the market expected the FOMC meeting at 2 pm to be dovish.

Interestingly, the initial FOMC statement and dot plot brought some hawkish shocks, with the latest Fed forecasts showing only one rate cut in 2024, less than the previous forecast of three, and core PCE inflation forecast to be 2.8% at the end of the year, higher than the previous forecast of 2.6%.

Naturally, Chairman Powell spent much of the press conference trying to pull the narrative back to a dovish stance, clearly trying to downplay the importance of official forecasts. Chairman Powell even made it clear that "most" officials did not incorporate the lower-than-expected CPI data into their forecasts, which was quite tactful.

In addition, Powell pointed out that the job market has returned to a state equivalent to that before the epidemic, with job openings, quits and the recovery of the labor supply showing signs of normalization. On the economic front, the Fed believes that growth will continue at a solid pace, and officials "see what we hope to see to some extent, that is, a gradual cooling of demand." Finally, he also emphasized that the Fed is paying attention to downside risks and hopes to make a soft landing of the economy a top priority.

In summary, Bloomberg pointed out that Powell mentioned inflation 91 times, while the job market was only mentioned 37 times, indicating that price pressures are still the main focus. The stock market followed the trend and decided to refocus on the earlier CPI data. The SPX index closed at 5,438 points, close to a record high, while the 2-year and 10-year US Treasury yields closed at 4.70% and 4.3%, respectively, both of which were one-week lows. The SPX index is currently in the second longest streak of no more than 2% declines in history, and it only takes another month to set a new record!

Crypto prices have struggled all week despite an overall stronger macro environment. BTC has struggled to break $70,000 as market positioning skews long, and the combination of BTC ETF holders raises questions about how much of the year-to-date inflows has been for accumulation rather than relative value or basis trading. ETH is also down 8% this week, mainly as the stimulus from the ETF approval has faded, while the decline in fees and competition from L2 continues. The technical picture looks a bit challenging at the moment, and cryptocurrencies could be vulnerable to a belated reversal in stock market sentiment.