Market Pulse: Inflation Undershoots Forecast, Rate Cut Odds Rise

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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Inflation Data is OUT

• Core Inflation MoM: Consensus 0.3%, Actual 0.3%
• Core Inflation YoY: Consensus 2.5%, Actual 2.5%
• Inflation Rate MoM: Consensus 0.3%, Actual 0.2%
• Inflation Rate YoY: Consensus 2.5%, Actual 2.4%

Overall, a small downside surprise. The Year-on-Year numbers come in as forecasted, showing continued disinflation. Headline MoM came in at 0.2% vs 0.3% expected - a small downside surprise. Core MoM ticked up to 0.3% from December's 0.2%, but was in-line with consensus.

Fed Path Implications:

With inflation coming in lower than last month's readings and trending towards the 2% mandated target, this should allow the Fed to focus more on the employment part of their mandate rather than the inflation side of the mandate. And the result of this would be the Fed cutting rates sooner than what the market is currently pricing - risk assets respond well to this. This likely brings forward the next rate cut from July back to June. The tell is the US2Y Yield - it's down, i.e., the Fed can cut rates.

Market Reaction:

Going into the print, Bitcoin had retested the $65k level before bouncing to $67k. Meanwhile, the equity indexes have pulled back from their highs, with sentiment being quite negative, with Bond Yields falling - a risk-off trade, where investors have fled to safety in the form of Bonds and away from Big Tech.

Following today's lower inflation numbers, we're seeing a small bid back into 'risk assets' with both Crypto and Equities getting a bid.

Our View?

In the short-term, we expect a small relief rally to take place. This could result in Bitcoin moving up to the $70k level. Now, this doesn't mean that we're risk on, but rather a relief rally within a broader downtrend. We remain overweight to cash that we'll look to deploy 80% of that cash into Bitcoin between $50k-$63k - assuming it gets there.

For traders: Traders can play a move from $67k up to $70k, but it's risky as price action has been weak recently. Our preference is to remain patient for now.

Cryptonary’s Take:

We're of the view that BTC can retest the $70k level in the short-term. But beyond the immediate term, we expect that the $60k low for Bitcoin is just a 'local' low rather than the 'low', and we expect the price to test the $50k-$60k range.

Our strategy: remain patient, and look to deploy cash between $50k-$63k.

Peace!