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

The long-awaited macro dual headline day has finally arrived, and the results did not disappoint. First, the CPI data came in far below expectations, with the core CPI rising 0.16% month-on-month (the lowest level since August 2021), significantly lower than the market expectation of 0.3%. The "super core CPI" was particularly weak, showing negative values; service spending declined, commodity prices remained flat, and housing inflation rose but remained within controllable limits. Following the CPI announcement, Wall Street economists quickly revised their PCE forecasts down from 2.8% to 2.6%, moving in the right direction towards the Federal Reserve's long-term target.

The macro market reacted sharply to the data, with a steepening bull market in U.S. Treasuries, as the 2-year yield fell sharply by 17 basis points, reflecting a pricing expectation of a rate cut of up to 51 basis points for the December FOMC meeting. The stock market also experienced multiple standard deviation fluctuations, with the market expecting a dovish tilt in the FOMC meeting at 2 PM, leading both the SPX and Nasdaq indices to rise by 1.5%, reaching new highs.

Interestingly, the initial FOMC statement and dot plot brought some hawkish shocks, with the latest Federal Reserve forecast indicating only one rate cut in 2024, fewer than the previously predicted three. Additionally, the forecast for core PCE inflation at the end of the year was raised to 2.8%, higher than the previous forecast of 2.6%.

Naturally, Chairman Powell spent most of the press conference trying to steer the discussion back to a dovish stance, clearly attempting to downplay the importance of the official forecasts. Chairman Powell even stated that "the majority" of officials did not incorporate the lower-than-expected CPI data into their forecasts, suggesting that these projections are somewhat outdated, which was quite a clever response.

Moreover, Powell pointed out that the labor market has returned to a state comparable to pre-pandemic levels, with job openings, turnover rates, and labor supply all showing signs of normalization. Economically, the Federal Reserve believes that growth will continue at a robust pace, and officials "have seen some hope for what they want to see, which is a gradual cooling of demand." Finally, he emphasized that the Federal Reserve is monitoring downside risks and aims to prioritize a soft landing for the economy.

In summary, Bloomberg noted that Powell mentioned inflation 91 times, while the labor market was mentioned only 37 times, indicating that price pressures remain the primary focus. The stock market followed suit, deciding to refocus on earlier CPI data, with the SPX index closing around 5,438 points, near a historical high, while the 2-year and 10-year U.S. Treasury yields closed at approximately 4.70% and 4.3%, respectively, both at weekly lows. The SPX index is currently on its second-longest streak of not exceeding a 2% decline in history, and just one more month could set a new record!

Despite the overall strengthening macro environment, cryptocurrency prices have struggled throughout the week. The market positioning is biased towards the bullish side, coupled with questions raised by BTC ETF holders about how much of the year-to-date inflow has been for accumulating holdings rather than relative value or basis trading, which has made it difficult for BTC to break through the $70,000 mark. ETH also fell 8% this week, mainly due to the fading stimulus from ETF approvals, while the decline in transaction fees and competition from L2 continues. Currently, the technical outlook appears somewhat challenging, and if stock market sentiment reverses late, cryptocurrencies could be easily impacted.