SignalPlus Macro Research Report (20231212): US core CPI slows down, BTC flash crashes 7%
Market trading was relatively calm yesterday. While waiting for CPI data and the FOMC meeting, the stock market continued Fridays rise. The SPX held on to gains and closed near this years high; for CPI, investment banks forecast a month-on-month growth of 0.3% in November, helping the core PCE returned to below the Feds 2.5% target, and the market expects housing inflation and second-hand car prices to remain stable this month, keeping inflation under control. However, this months data is unlikely to be low enough to support market expectations of 4-5 interest rate cuts next year.
The last FOMC meeting of the year will be held on Wednesday. As the market once again tries to guide and force the Federal Reserve to embark on a dovish path, expectations for the Federal Reserve to respond to sharp easing of financial conditions are increasing; looking back at some key indicators from the past two FOMC meetings, GDP , activity indicators and employment growth were broadly stable. However, what cheered the market was the significant slowdown in core PCE, CPI, hourly wages and oil prices, which has caused the 2026 forward rate to have fallen by 75% since the September and October meetings respectively. and 50 basis points.
Stable economic performance, accompanied by a sharp decline in implied interest rates, has created a perfect ideal boom for US stocks, with the SPX up 3.6% since September and 10% since November; next, the Bank of England, Bank of Japan , the European Central Bank and the Federal Reserve will all meet in the next two weeks. Will they try to correct the excess optimism in the market? Or will they stand still? let us wait and see.
It seems that there is nothing that can stop this wave of risk rebound, and we are almost beginning to enter the blackout period of stock buybacks, which usually occurs about 4 to 6 weeks before earnings are announced, and the amount of authorized buybacks so far this year is close to 1 trillion. The U.S. dollar, which is at its third-highest level ever, provides another support for stocks; moreover, market participants are currently showing no signs of seeking bearish protection, with tail hedging costs in U.S. stocks falling to two-year lows in March. Crashes may seem like a distant past, but if markets have taught us anything over the years - optimism usually pays off.
Speaking of tail risks, BTC plummeted in early Asian trading yesterday due to rumors of large-scale spot selling. The price flashed from 43.5k to below 41k, quickly giving up several weeks of gains and dragging down the entire cryptocurrency market, nearly 5 Billions of long futures were liquidated in this drop, which is reminiscent of the regular violent fluctuations often seen before FTX; current positions are tilted in one direction to the long side, but no new FOMO funds have entered (according to stablecoin market capitalization and Google Trends Lack of growth judgment), there is the potential for more volatility as positions begin to consolidate, and the market may need some correction before it can again attempt to move higher.
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