SignalPlus Macro Analysis (20240313): CPI data exceeded expectations, and risk assets rebounded again

The overall CPI and core CPI of the United States in February both increased by 0.4% month-on-month, with most components showing growth. Energy rebounded by +2.3%, gasoline rebounded by +3.8%, services rebounded by +0.5%, and housing rebounded by +0.4%. Super core inflation remains at a high of 0.47%, well above the Feds target, but it is difficult to reach the hawkish threshold, and risk assets still rebounded strongly after the data was confirmed.

The SPX jumped 1% immediately after the data was released and managed to hold on to gains after the mornings volatility. Technology stocks once again led the gains, with Nvidia again rising around 9%, while Oracle rose 12% on soaring cloud revenue, with a backlog of $80 billion, higher than the $59 billion expected, and total revenue for the quarter rising 25%.

While investors are now used to the daily rise in risk (shorts have become an endangered species), a stock market rally on the back of strong inflation data is still a rarity in recent history, or at least since the beginning of a rate hike cycle, and perhaps thats why It is a sign that investors are more focused on micro-profit fundamentals than macro factors. However, despite the high CPI, the bond market is still confident that the Federal Reserve will start cutting interest rates in June (63%), and there are still 3.4 interest rate cuts expected before the end of the year. As always, the Federal Reserves next move will be quite limited.

In credit markets, with 2.5 weeks left until the end of March, high investment grade bond issuance has broken quarterly records and CDS spreads are at their tightest levels in more than two years this year amid the absence of any negative sentiment across all asset classes. Could the black swan risk be that all asset classes don’t experience any significant drawdowns? It’s scary to think about.

As expected, the cryptocurrency market also continued to rise. As VanEck announced that it would waive fees for the next 12 months, the daily trading volume of spot ETFs once again reached US$8.5 billion. Net inflows of ETFs other than GBTC increased by US$1 billion yesterday. Thats more than double GBTCs $500 million outflow, and the ETFs total AUM is just shy of $60 billion, and the quarter isnt even over yet.

For those who are still not satisfied, the famous 2x leveraged ETF has also seen a surge in trading volume, and with buying emerging on every dip in BTC, the increase in trading volume shows no signs of slowing down. Open interest in CME Bitcoin futures also hit a new high as institutional investors jumped on the bandwagon. In the current situation, the difference between leveraged tech/AI stocks and cryptocurrencies is not clear, both seem to be moving in sync during the US trading session, but as long as everything is going up no one cares, just remind everyone to still be aware of the risks !

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