Macro Economy Weekly | Bitmidas
2023–11–20
CPI Declined Out of Expectation: Inflation Cooled Down
Inflation in the United States cooled across the board in October: the labor market cooled, and economic activity slowed. The Federal Reserve is unlikely to raise interest rates in December. U.S. debt now peaks; interest rates peak; interest rate cut expectations are brought forward…
Important Data of the Week
The U.S.’s seasonally adjusted annual CPI rate in October was 3.2%, lower than the previous value of 3.7% and the expectation of 3.3%, the lowest since July this year.
The U.S. seasonally adjusted CPI annual rate in the United States in October was 0%, lower than the previous value of 0.4% and the expectation of 0.1%, a new low since July 2022.
The U.S. seasonally adjusted core CPI in late October recorded an annual rate of 4%, the lowest since September 2021.
The core CPI monthly rate in the United States in October was 0.2%, the lowest since July this year.
The U.S. PPI annual rate in October was recorded at 1.3%, lower than the previous value of 2.2%, and the forecast of 1.9%.
The PPI monthly rate in October was recorded at -0.5%, which was the highest level in April 2020, the biggest drop since last month.
The number of initial jobless claims in the United States in the week ending November 11 was 23.1, which was higher than the previous value of 21.8 and the expectation of 22, the highest in the past three months. The number of continuing unemployment claims rose to 186.5, which was higher than the previous value of 183.3 and the highest level in the past two years.
The U.S. retail sales rate recorded -0.1% in October, the lowest since March this year, and economic activity slowed.
The U.S. CPI and PPI have cooled across the board, and labor market conditions continue to ease. The probability of keeping interest rates unchanged in December has increased to 100%.
CPI and PPI both drop down and the labor market continues to slow down. CME Federal Reserve interest rate swap data shows the probability of an interest rate cut in May 2024. The probability of rate cus in May next year has increased from 30.7% in the previous period to 49.3%, close to 50%, while the probability of an interest rate cut in March 2024 has increased from 13.8% to 32.7%.
From historical data, the high point of U.S. bond interest rates is usually ahead of the endpoint of interest rate hikes. U.S. bond yields peak. If they continue to fall, the interest rate is expected to see cuts.
Federal Reserve Balance Sheet
Federal Reserve officials stated that they will continue to reduce its balance sheet. Its size has been reduced to 7,814,991.64（$M) dollars.
Recession Indicators-U.S. Debt Inversion
CPI and PPI both cooled across the board, and there is a 100% probability of no interest rate hike in December. The pressure on U.S. debt has decreased, and U.S. debt yields continued to recover. The 10-year Note Bond yield fell to 4.43%, and 2/10 inversion spread is at 44.39bp.
Market Performance
There’s a 100% probability of no interest rate hike in December; interest rate cuts are expected ahead of schedule, and support for the US dollar has weakened and downward pressure strengthened. The U.S. dollar index fell sharply to the 103 area, and 102~100 is the key dividing line for the U.S. dollar index.
CPI and PPI cooled down across the board. The probability of no interest rate hike in December is 100%, and interest rate cuts are expected ahead of schedule, which is bullish for gold. Gold is running towards the US$2,000 mark.
CPI and PPI cooled across the board, labor data continued to slow, and U.S. bond yields fell, boosting U.S. stocks, with the S&P 500 bouncing back to 4100. The V-shaped rebound recovered all the previous declines this year.
The $38,200~$38,600 resistance is the key resistance this month, which has a certain pressure on the price. After BTC failed to test it many times in the short term, there will be certain adjustments. The market as a whole is likely to cool down this week and enter a high level of adjustment. If there is an effective breakthrough after the adjustment, it will be easy to reach $40,000~$46,000.
Summary
CPI, PPI, and labor data all went down more than expected, retail sales data and other economic data slowed down, and interest rates staying unchanged in December is a consensus. There’s a high probability that the interest rate hike cycle has ended.
From historical data, the peak of U.S. bond interest rates is usually ahead of the peak of interest rate hikes. Since November, U.S. bond interest rates have fallen sharply from 5% to 4.5%. All economic data has cooled down. In 2024, the U.S. economic growth is expected to slow down, but not to negative growth. As real interest rates are expected to fall, the top of U.S. bond yields can basically be confirmed in the current stages. All signals that interest rate peaks and rate cuts are on the horizon. The market has already priced in the expectation that the Federal Reserve will start cutting interest rates in May next year, with a total of 100 bp of interest rate cuts throughout the year. Economist and Wharton School professor believes that an interest rate cut is likely to come in March 2024.
Overall, recent macro data and trends indicate that the interest rate hike cycle is likely to end and enter the observation and confirmation stage. Historical data suggests a peak in interest rates, and the market has advanced the time for a reliable interest rate cut to May 2024, and for a radical rate cut in March.
Completion of this report: 2023–1118–10:00 (UTC+8)
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