SignalPlus Macro Analysis (20240314): Inflation rebounds, the Fed will continue to maintain loose policy
The market trend did not change much yesterday and was on the sidelines near the recent high. The aftermath of the announcement of CPI, coupled with the additional issuance of US$22 billion of 30-year government bonds, led to an early steep bearish trend in U.S. bond yields. In addition, the market showed early signs of a reflation trade, with copper prices breaking out of a two-year downtrend and US inflation swaps also rising to a 3-month high. The Fed is likely to remain accommodative despite stubbornly high inflation, and the focus in the short term is likely to return to long-dated yields, especially as the markets reaction to the Bank of Japans removal of yield curve control next week remains unclear.
Japanese unions have achieved record wage increases and the Bank of Japan looks set to finally exit its negative interest rate policy. With the Shanghai Composite Index already up this year (+3%), 30-year Chinese government bonds have also suffered their largest decline since 2021. (Price falls, yield rises), will China’s recent deflationary pressure also be alleviated? Will we see a synchronized wave of reflation across the world as central banks firm up their easing policy stance?
Nothing changes market sentiment like price, and Microstrategy this month alone has announced a second convertible bond issuance that will raise $500 million to buy more Bitcoin. The company has already purchased more than The $1 billion Bitcoin, mainly due to the sale of early convertible bonds, has net proceeds of more than $800 million. The companys stock price has exceeded the high point in 2021, and is still about half of the high point during the Internet bubble in 1999. As cryptocurrency gains continue unabated, will history repeat itself?
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