Bitcoin makes new all-time high, US CPI in the spotlight

* Bitcoin’s market cap jumps to $1.4tn, surpassing silver as it hits $72,000

* Gold marginally higher on boosted rate cuts as traders brace for inflation

* US stocks for a second day as rally to record highs pauses

* US CPI is seen as still too high for FOMC, last inflation report before FOMC

FX: USD traded in a narrow range after the whippy price action in the immediate aftermath of Friday’s NFP. The jobs report was mixed with several indicators of a better-balanced labour market. The DXY is trading around the 50% level of the December/February rally at 102.28. The 61.8% retracement is 102.28 and 38.2% at 103.31. All eyes are on today’s US CPI release, which is an hour earlier than normal due to US daylight savings.

EUR held above 1.09 after it made near two-month highs at 1.0981 after NFP. Another ECB official favoured waiting until mid-year to decide on rate cuts. There are numerous ECB speakers this week. After last week’s ECB meeting, hints around a June move and conditions needed on wage and inflation to start policy easing will be key.

GBP sold off after printing a cycle high at 1.2894 on Friday. Prices were overbought so some consolidation after the spike high was logical. Jobs and wage data are released today ahead of next Wednesday’s CPI data and Bank of England meeting the following day.

USD/JPY was the relative outperformer as the major sell-off continued for a fifth straight day. Prices traded below a Fib retracement level (38.2%) of the December/February rally at 146.81 before a rebound. GDP data showed Japan didn’t enter a technical recession in Q4. Local media reports ramped up speculation around the BoJ ending negative interest rate policy (NIRP) as soon as next week. There’s around a 60% chance of a 10bps hike.

AUD underperformed as iron ore prices extended losses. The aussie spiked up to 0.6667 late last week but is trading closer to 0.66 again.  USD/CAD dipped to 1.3419 on Friday before closing in the green. Solid job gains printed but the risk mood was muted.

Stocks: US equities were predominantly lower as small caps and the Nasdaq lagged US peers. The broad-based benchmark S&P 500 closed 0.11% lower at 5,117. The tech-heavy Nasdaq 100 lost 0.37% to finish at 17,951. The Dow Jones settled 0.12% up at 38,769. Weakness in semiconductors was notable with Nvidia down another 2% after its 5.6% fall on Friday, having posted record highs. Meta sunk 4.4% after it got a negative mention from Presidential candidate Trump. Tesla gained 1.39% as it raised the price of its model Y electric vehicle. The stock is consolidating on long term lows around $177.

Asian futures are marginally in the red. APAC stocks traded in subdued fashion to kick off the week, after tech-led declines on Friday in the US. Markets also digested the latest hawkish BoJ source reports and Japanese GDP. The ASX 200 slumped on the falling mining and resource sectors. The Nikkei 225 fell below 39,000 after GDP data and a stories around the potential exit from NIRP.

Gold consolidated recent gains, closing marginally higher. It printed another consecutive record high close, with Friday’s intraday top at $2195. The latest CFTC data showed that speculators increased their net longs with the biggest weekly addition since June 2019, for a third consecutive week. They now have the highest bullish bets since the week ending 2 January 2024.

Day Ahead – US CPI

It’s the last US inflation report ahead of next week’s FOMC meeting. New economic projections and dot plot get published too next Wednesday. The monthly headline CPI figure is forecast at 0.4% m/m, which would be above what Fed officials ideally need to see in order to kick off the rate cut cycle. The 12-month CPI rate is expected to have stayed unchanged at 3.1%.

But there may be some relief from the core measure that excludes food and energy prices. It’s projected to have eased two-tenths to 3.7% y/y with the m/m number a tick lower at 0.3%. Shelter costs are the key component and a heavy weighting in the consumer basket. Falling prices in market-based gauges of rent are expected to impact CPI at some point.

There’s currently a 72% chance of a 25bps June rate cut. That’s very close to the 70% threshold that is generally recognised as where the FOMC would be expected to deliver what’s priced in. The dollar would like a sticky set of data, while the rallies in stocks and gold would initially retrace if the figures were hotter than expected.

Chart of the Day – GBP/USD pauses for breath

We also get key UK pay growth data out today. The prior release saw a decline and further moderation is forecast, though it is likely to remain elevated around +5.7% 3M/YY with the ex-bonus at +6.2%. From a policy perspective, the first 25bps rate cut is near-enough fully priced in by the time of the August BoE meeting with a total of 61bps of easing by year-end. An out-of-consensus release could have some sway on market pricing. However, the extent of any repricing will be limited by the need of policymakers seeing further progress on services inflation which is released next week.

Friday saw Cable move out of a long-standing range with the prior late December top at 1.2828. The major toppped at 1.2894 after NFP but has seen some selling to kick off the week. Support is 1.2790/00 while resistance will be last week’s high.

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