Expectations of Fed Rate Cut Intensify, But Global Assets Plummet After Inflation Data Release

Expectations of Fed Rate Cut Intensify, But Global Assets Plummet After Inflation Data ReleaseOn Wednesday, the US released its first inflation report since the elections. While the figures largely aligned with expectations, trader bets on a December Fed rate cut rapidly increased after the data release

Expectations of Fed Rate Cut Intensify, But Global Assets Plummet After Inflation Data Release

On Wednesday, the US released its first inflation report since the elections. While the figures largely aligned with expectations, trader bets on a December Fed rate cut rapidly increased after the data release. Subsequently, statements from Fed officials triggered a global asset market selloff. As of press time, the S&P 500 and Nasdaq have turned red, the A50 futures index has also fallen significantly, and gold, silver, oil, and the majority of commodities in the futures market have experienced price declines.

Inflation Data Meets Expectations, but Rate Cut Expectations Rise

Data released by the US Labor Department reveals that the US unadjusted year-on-year CPI rose 2.6% in October, meeting expectations and up from the previous month's 2.4% increase. The adjusted month-on-month CPI rose 0.2%, matching expectations and the previous month's increase. Core inflation, excluding food and energy prices, rose by 3.3% year-on-year. The overall CPI rose 0.2% for the fourth consecutive month, marking an acceleration from the previous year's 2.6% increase, the fastest pace since March.

Following this inflation data release, traders amplified their bets on a December Fed rate cut. Data from the CME Group's "FedWatch" tool indicates a 75.7% probability of a 25-basis-point rate cut in December, compared to only 62.1% earlier. The likelihood of a cumulative 25-basis-point cut by January stands at 59.2%, while the probability of a 50-basis-point cut has reached 24.3%, compared to previous figures of 54.9% and 18.6% respectively.

Fed Officials' Statements Trigger Market Volatility

However, statements from Fed officials led to a sharp reversal in market sentiment. Logan, a Fed official, indicated that the Fed might need further rate cuts but should proceed "cautiously." He admitted it's difficult to determine the number of necessary cuts and their pace. He also pointed out upward risks to inflation and downward risks to employment, noting that financial conditions pose the most substantial potential challenge to monetary policy.

Another Fed official, Kashkari, stated that inflation is moving in the right direction but that the next Fed meeting is still six weeks away, during which additional data will be released. He also mentioned that he is not yet ready to declare that inflation will remain above the 2% target. Kashkari further highlighted that the labor market is slowing but that there are no apparent signs of upward inflationary pressures yet. He added that the more significant risk lies in the possibility of the economy entering a recession.

Global Assets Plunge

The pronouncements from Fed officials sparked market concerns, suggesting that rate cuts might not be as strong as anticipated or even potentially paused. This triggered a selloff across global asset markets.

Spot gold and silver initially surged, experiencing significant price increases following the inflation data release. However, with the publication of Fed officials' remarks, gold and silver prices swiftly retraced, largely erasing their earlier gains. Gold fell below $2,600 per ounce, while silver turned from a rise to a decline.

Bitcoin, fueled by positive news like Trump's victory in the U.S. presidential election, Fed rate cuts, and continuous inflows into Bitcoin spot ETFs, has been on an upward trajectory, recently breaking through $91,000, marking a historical high. However, following the speeches of Fed officials, Bitcoin also experienced a substantial pullback, witnessing a daily decline exceeding 4%.

This impact extended to U.S. cryptocurrency stocks, which also plummeted. MicroStrategy dropped over 4%, Coinbase fell more than 3%, and RiotBlockchain declined by 2%.

Investment Institutions Increase Bitcoin Holdings

Despite the market pullback, investment institutions' enthusiasm for

Bitcoin remains undeterred. Verde, a well-known Brazilian hedge fund,

reported that the firm established Bitcoin positions before the US

election, although the specific size was not disclosed.

"Bitcoin whale" MicroStrategy announced another increase in Bitcoin holdings.

The company revealed that it raised approximately $2 billion

through a new stock issue from October 31 to November 10, using the funds

to purchase 272,000 bitcoins. Currently, MicroStrategy owns

approximately 1% of the world's circulating Bitcoin supply, bringing its

recent Bitcoin holdings to 279,420, valued at approximately $24 billion.

The Hong Kong-listed company Boyaa Interactive announced that as of

the current date, the company holds 2,641 bitcoins, with a total cost of

approximately $143 million, averaging $54,000 per BTC; it also holds

15,400 Ethereum with a total cost of approximately

$42.5781 million, averaging $2,756 per ETH.

Another Hong Kong-listed company, BlueFocus Interactive, disclosed in

its 2024 mid-year report that the company continues to increase

investment in the field of third-generation internet

business, having already purchased 43.3396 bitcoin and 848.386

Ethereum in the open market during the first half of the year.

Summary

Although US inflation data met

expectations, statements from Fed officials triggered market panic,

leading to a plunge in global assets. Nevertheless, investment

institutions remain enthusiastic about Bitcoin, continuing to increase

their holdings. Investors need to closely monitor the future direction of

the Fed's monetary policy and global economic trends to better seize

investment opportunities.