All eyes on the Fed

Thoughts of the Day

Today, the US Federal Reserve will have its policy meeting and will release its quarterly Summary of Economic Projections (SEP). No interest rate change is expected, and the focus is on potential adjustments to projected cuts. (In Dec 2023, projections were for 3 rate cuts in 2024.) Despite disappointing CPI & PPI, job market moderation suggests no imminent change.

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Day Ahead

The UK Consumer Price Index is expected to show that prices rose +3.6% Year-on-Year, down from +4.0% in Jan. 

The Federal Reserve is expected to keep interest rates unchanged at 5.5%. Its quarterly economic projections (dots plot) and Fed Chair Powell’s press conference will provide clues on the timeline of possible interest rate cuts in the months ahead.

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What Happened Yesterday

Market Movements as of New York Close 19 Mar 24

The Bank of Japan ended its eight years of negative interest rates during its March meeting as expected as the negative rate policy has fulfilled its purpose. The BoJ expects inflation to remain above 2% through 2024. However, the BoJ will continue its purchase of JGBs unchanged. Although they hiked, their intentions were well telegraphed and their comments remain extremely dovish (see more in article 1 below). As such, bets that the hike would lead to a stronger JPY were disappointed. The USDJPY spiked +0.29% from 149.26 to 149.70  immediately after the data release and continued going higher through the day to end the day at 150.85. The Japanese 10-year bond yields fell -0.03% on the day while the Nikkei futures rose +1.03% on the day.

Canada’s annual inflation rate (Consumer Price Index/CPI) decelerated to +2.8% in February (vs +3.1% expected), down from +2.9% in January, hitting its lowest figure since June 2023. The core inflation rate in Canada, which excludes volatile elements, decreased to +2.1% (expected 2.3%) in February 2024, reaching its lowest point since March 2021, from +2.4% in January. On a month-over-month basis, consumer prices in Canada saw a slight increase of +0.3% in February (vs+0.6% expected), after showing no change in January. This outcome grants the Bank of Canada (BoC) greater flexibility to cut interest rates later in the year. 

The US Treasury Yield curve inversion narrowed to 0.38% as the US 2-year bond yield fell -0.05% to 4.68% while the 10-year yield decreased -0.04% to 4.30%. 

The US stock futures remained within a range through the Asian trading session. It then started to dip during London trading hours before bouncing back following the release of the softer than expected Canadian CPI data. The S&P 500 futures were down -0.18% when the New York session began.

The US stock market opened lower from Monday. It then climbed higher through the New York session as risk sentiment strengthened from the weak Canadian CPI. As a result, the S&P 500 rose +0.56% (high: +0.60%, low: -0.35%), the Dow Jones increased +0.83% (high: +0.86%, low: -0.08%) while the Nasdaq popped +0.26% (high: +0.30%, low: -0.98%).

The crypto market is starting to seem precarious with Bitcoin and Ether down -8.4% and -10.3% on the day.
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Headlines & Market Impact

Bank of Japan ends the world’s only negative rates regime in a historic move, abandons yield curve control

Notable Snippet: “The likelihood of inflation steadily achieving our target has been heightening … the likelihood reached a certain threshold that resulted in today’s decision,” BOJ Governor Kazuo Ueda said at a press conference after the central bank’s decision, according to a translation provided by Reuters.

The Bank of Japan though cautioned it’s not about to embark on aggressive rate hikes, saying that it “anticipates that accommodative financial conditions will be maintained for the time being,” given the fragile growth in the world’s fourth-largest economy.

“If the likelihood heightens further and trend inflation accelerates a bit more, that will lead to a further increase in short-term rates,” Ueda said. He added though there is still “some distance for inflation expectations to reach 2%.”

The central bank, though, will continue purchasing government bonds worth “broadly the same amount” as before — currently about 6 trillion yen per month.

It would resort to “nimble responses” in the form of increased JGB purchases and fixed-rate purchases of JGBs, among other things, if there is a rapid rise in long-term interest rates.

Scaling back its asset purchases and quantitative easing, the BOJ said it would stop buying exchange-traded funds and Japan real estate investment trusts (J-REITS). It also pledged to slowly reduce its purchases of commercial paper and corporate bonds, with the aim of stopping this practice in about a year.

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Nvidia CEO Jensen Huang says ‘AI computing ramp’ is only beginning and will last years

Notable Snippet: “We’re in the beginning of this AI computing ramp,” he said. “And we’re at the beginning of the accelerated computing ramp. It’s going to last a few years.”

Jensen emphasised the way AI can enable innovation in a variety of fields, including in science and health care. He said AI can help “understand the meaning of proteins, the meaning of life” in a way that can speed up the research and development of new treatments.

“We could use that computer to simulate life such that we don’t have to do as much of the screening in a wet lab,” Jensen said. “And so, whatever we decide, ultimately, to take to trials will have a much higher possibility of actually passing the trial.”

Jensen also discussed Nvidia’s array of customers, saying the company’s technology has managed to significantly accelerate data processing and cut costs.

“We created a brand-new way of doing computing,” he said. “Our technology is integrated into all these computer makers, and the world connects it together, and that’s the reason why Nvidia is everywhere. We’re in every cloud, every data centre.”

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Grayscale bitcoin ETF saw record daily outflows as bitcoin tumbled

Notable Snippet: A selloff in bitcoin continued on Tuesday, accompanied by record outflows from Grayscale’s Bitcoin Trust, accelerating the asset losses by the fund since it converted into an exchange traded fund this year.

Grayscale’s ETF notched a daily record of $642.5 million in outflows on Monday, according to data from BitMEX Research, when bitcoin tumbled about 4%. The cryptocurrency was down another 2% by mid-afternoon Tuesday, bouncing off session lows. Data for Tuesday’s flows will be available Wednesday morning.

Investors have been unloading holdings in the Grayscale fund since it converted into an ETF Jan. 10. Meanwhile, money has flowed into the nine new spot bitcoin ETFs approved by the U.S. Securities and Exchange Commission on the same date.

Monday’s outflows from the Grayscale ETF brought the total to roughly $12 billion since Jan. 10, though the 52% gain in bitcoin’s price has helped counterbalance some of those losses. The fund’s assets now stand at $27.2 billion, compared to $29 billion on the first day of trading in the new ETFs.

“As the largest and currently the most expensive bitcoin ETF, profit taking and redemptions are understandable,” said Todd Rosenbluth, head of research at VettaFi, a market analysis firm.

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Phan Vee Leung
CIO & Founder, TrackRecord