Interest Rate Cut Expectations Adjust

With the latest inflation figures surpassing forecasts, traders have slightly reduced their expectations for a June interest rate cut. The likelihood, as per LSEG’s app, fell from 72% to 67%. Similarly, the CME Group’s FedWatch tool shows a 65% chance of a rate cut in June. This cautious approach reflects the market’s response to the Federal Reserve’s signals on future rate adjustments.

Inflation and Federal Reserve’s Stance

Despite inflation easing from its 2022 highs, it remains above the Federal Reserve’s 2% target. The Fed’s decision-making hinges on these inflation trends, with few clues about the timeline for rate cuts. Fed Chairman Jerome Powell’s recent comments suggest the first cut might not be far off. The upcoming producer price index will offer further insight into inflationary trends.

Market Reactions and Dollar Stability

The U.S. dollar index maintained stability as the market processed the inflation data, with expectations of a Fed rate cut in June still strong. The Treasury yields and the dollar saw an increase, partly driven by a weak demand at a Treasury note auction. Meanwhile, geopolitical tensions, particularly concerning Russia and Ukraine, also influence market trends.

Short-Term Market Forecast: Bearish

Considering the current economic indicators and market reactions, a bearish short-term forecast for gold prices is plausible. The combination of steady dollar performance, higher Treasury yields, and cautious investor sentiment due to inflation data and geopolitical concerns, suggests a potential further decline in gold prices in the near term.

Technical Analysis

Ken Griffin Advocates Caution: Urges Fed to Proceed Slowly with Interest Rate Cuts Amid Stubborn Inflation

At the International Futures Industry conference, Citadel CEO Ken Griffin advised the Federal Reserve to exercise patience in reducing interest rates to combat persistent inflation. Griffin warned against hasty rate cuts followed by abrupt reversals, emphasizing the need for a measured approach. He highlighted ongoing inflationary pressures stemming from government spending and deglobalization trends. With inflation remaining above the Fed’s target, Griffin’s remarks suggest a cautious stance ahead of the Fed’s upcoming policy meeting. (CNBC)

China’s Property Crisis Deepens: Vanke Faces Debt Crunch Amid Evergrande Fallout

China’s real estate turmoil escalates as Evergrande’s liquidation triggers a broader crisis, with plummeting home sales and prices. Analyst Charlene Chu warns of further distress, indicating the sector’s ongoing collapse. Concerns mount over state-backed developer Vanke’s financial woes, prompting Beijing’s intervention to avert default. Despite its sound financial standing, Vanke’s debt restructuring signals deepening market instability. With fears of contagion looming, China’s property crisis poses risks to both domestic and global economies. (Business Insider)

Global Dividend Payouts Reach Record $1.66 Trillion in 2023, Led by Banking Sector Growth

According to Janus Henderson’s latest report, global dividend payouts surged to a new high of $1.66 trillion in 2023, with a 5% year-on-year increase on an underlying basis. The banking sector drove much of this growth, benefitting from high interest rates. However, mining sector cuts offset some gains, with major companies like BHP and Rio Tinto slashing dividends. Despite this, 86% of listed companies maintained or increased dividends, with Europe notably leading the growth, indicating robust global dividend trends. (CNBC)

Shiba Inu and Dogecoin could potentially unseat Cardano (ADA) from its top 10 cryptocurrency ranking. With the CEO of Nanse AI hinting at such a possibility, the markets’ communities are clashing again.

A glance at the price charts of SHIB and DOGE shows an undeniable rally. SHIB’s chart exhibits a bullish trend with a dramatic vertical climb, breaking past resistance levels with significant volume backing the price movements. This rally has not gone unnoticed, as FOMO triggers a flurry of investor interest, potentially driving prices even higher.

Dogecoin’s chart reflects a similar trajectory, with the price ascending sharply and maintaining its strength above the moving averages. The 50-day moving average has been a strong support level, which could fuel further price gains if the positive momentum continues. Both charts signify the “unstoppable growth” sentiment that meme coins have managed to capture.

The surging popularity of meme coins is largely driven by community support and social media buzz rather than fundamental value, which differentiates them from projects like Cardano, known for its strong technological foundations and DeFi aspirations. Despite this, the DeFi community’s skepticism toward Cardano’s performance and the criticism from Nansen and others might play into the market dynamics favoring meme coins.

As meme coins rally, powered by virality and community hype, there is a nonzero chance that they could surpass Cardano’s market cap, especially if the current growth trajectory continues. While this prospect may alarm some investors and delight others, it is essential to recognize the volatile and often unpredictable nature of meme coin movements, which can be as rapid in their decline as they are in their ascent.

However, the crypto market is known for its surprising turns, and while the current momentum for SHIB and DOGE is formidable, displacing a well-entrenched asset like Cardano requires sustained investor interest and market capitalization beyond a temporary rally. 

The yen got some encouragement earlier in Asia, following some early reports on the spring wage negotiations here. USD/JPY dipped to a low of 147.23 before rebounding slightly to around 147.60 as we got into European trading. But once again, BOJ governor Ueda failed to provide much assurance or confidence about an imminent policy move in his remarks here. And that seems to be weighing on the yen now, with USD/JPY up to 147.88 on the day.

Of note, the pair is pushing past its 100-day moving average (red line) of 147.63 currently. And a daily close above that will be a setback for sellers after the downside push last week. That will mean buyers have seized back the technical momentum in the pair again.

The BOJ got the ball rolling in teeing up a potential policy pivot in March. But now that we’re approaching the front porch, they look to be hesitant in opening up that door.

The Japanese central bank is no stranger in disappointing markets under Ueda’s tenure thus far. They have done so at almost each and every step last year already. And now, they might get one last chance to do so again.

Remember the meme?

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New US inflation data released yesterday showed that inflation remains relatively strong, with the annualized rate rising month-on-month from 3.1% to 3.2%.

1. Yesterday’s release of US CPI data showed the annualized rate rising from 3.1% to 3.4%, with Core CPI showing month-on-month growth of 0.4%, compared to the 0.3% expected. Despite the slightly bad news, US stock markets still look bullish, with the benchmark S&P 500 Index closing yesterday at a new all-time high price. The US Dollar barely moved despite the data.
2. Bitcoin advanced again yesterday to make a new all-time high just above $73,000. The short-term price action looks bullish. Trend traders will be interested here on the long side.
3. The price of Gold is showing initial signs of having topped out on Friday at a record high of $2195. However, these are only initial signs, and bulls are not likely to start getting out of longer-term positions yet until a deeper bearish pullback might be made.
4. In the Forex market, the New Zealand Dollar has been the strongest major currency since the Tokyo open today. The Swiss Franc has been the weakest.
5. In the commodities market, Cocoa futures rose strongly yesterday to reach new multi-year highs. Trend traders will be keen to be involved in this very long-running trend on the long side.
6. There will be a release of UK GDP data later today, which is expected to show a month-on-month increase of 0.2%.
7. Analysts in Japan are expecting sizable corporate wage rises will be agreed this week, which will likely trigger an abandonment by the Bank of Japan of its current ultra-loose monetary policy as soon as next week.

Tech stocks continued to rise, with Infineon Technologies and SAP seeing gains of 3.41% and 2.01%, respectively.

Eurozone Industrial Production and the ECB in Focus

On Wednesday, industrial production numbers for the Eurozone will garner investor interest. Economists forecast industrial production to decline by 2.6% in January after rising 2.6% in December.

Downward trends in consumer prices could see investors show more interest in the service and manufacturing sector data. A weakening macroeconomic environment could support bets on a more dovish ECB rate path for 2024.

Beyond the inflation figures, investors must monitor ECB chatter. ECB Executive Board members Kerstin af Jochnick and Piero Cipollone are on the calendar to speak. Support for an ECB interest rate cut in June would support the buyer appetite for DAX-listed stocks.

However, there are no US economic indicators from the US to consider. The lack of data will leave the US equity markets to influence market risk sentiment late in the European session.

Short-term Forecast

Near-term trends for the DAX will likely hinge on ECB and Fed interest rate cut bets. Softer inflationary pressures could signal multiple rate cuts in H2 2024. However, signals of a marked deterioration in the macroeconomic environment could pressure the DAX.

On Wednesday, the DAX futures and Nasdaq mini were down 20 and 24 points, respectively.

DAX Technical Indicators

Daily Chart

The DAX sat well above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX break above the Tuesday all-time high of 17,973 would support a move to the 18,000 handle.

On Wednesday, Eurozone industrial production and ECB commentary need consideration.

However, a drop below the 17,850 handle would bring sub-17,800 levels into play.

The 14-day RSI at 77.14 shows the DAX in overbought territory. Selling pressure could intensify at the Tuesday high of 17,973.

Jamie Dimon, CEO of JPMorgan Chase, has made a controversial comparison between Bitcoin and cigarette smoking. 

The influential banker has stated that he supports the right to buy Bitcoin, but he personally would never invest in it. 

During his speech at the Australian Financial Review business summit, Dimon expressed skepticism about the cryptocurrency’s utility, associating it with illicit activities like sex trafficking, fraud, and terrorism. 

Dimon’s persistent critique of Bitcoin

Long known for his critical stance on Bitcoin, Jamie Dimon has once again advised potential investors to steer clear of the cryptocurrency. 

In a recent CNBC interview, Dimon differentiated between blockchain technology and Bitcoin, praising the former for its efficiency and potential for real-world application through tokenization. At the same time, he dismissed Bitcoin as a valueless asset and likened it to a “pet rock.” 

He underscored his belief that Bitcoin’s primary utility lies in facilitating illegal transactions, further fueling his argument against the cryptocurrency’s investment merit.

Industry backlash 

Dimon’s January comments and his call for a potential Bitcoin ban were met with backlash from prominent figures in the cryptocurrency industry. Leaders like Grayscale CEO Michael Sonnenshein, Galaxy Digital’s Mike Novogratz, and Ripple’s CEO Brad Garlinghouse have countered Dimon’s views.

Despite the criticism, Dimon maintains that the risks associated with cryptocurrencies justify his cautious stance.

Major currencies are mostly little changed as broader markets are taking a bit of a breather so far today. The US CPI data yesterday produced a chaotic reaction as the dollar went up and down, before moving back up slightly again in the aftermath. That comes as bond yields also firmed but equities had other ideas as tech stocks rallied hard.

That is making it tough to get a good grasp on things but the Fed pricing now shows that odds of a June rate cut are at ~76% with 84 bps worth of rate cuts priced in for the year. It will now come down to whether the Fed sees fit to guide markets towards a move in June or preferring to keep their options open.

But so far today, equities are more muted while bonds are also not doing much. US futures are flat while 10-year Treasury yields are down just 0.6 bps to 4.148%. That’s not giving traders much to work with ahead of European morning trade later.

The yen is an early mover with USD/JPY easing to 147.23 before bouncing back to 147.60 now. Japan’s spring wage negotiations will conclude this week and we’re already getting some early headlines here. That will keep the yen in the spotlight until the weekend, with the BOJ coming up next week.

As for European trading, there will be some light data releases to move things along. But the main focus will stay on broader market sentiment as traders digest the post-CPI reaction before another slew of US data tomorrow.

0700 GMT – UK January monthly GDP data
1000 GMT – Eurozone January industrial production
1100 GMT – US MBA mortgage applications w.e. 8 March

That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.