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Inflation Figures Hit the Market

Plus500 | Tuesday 02 April 2024

Markets from Wall Street to cyberspace are experiencing turbulence as the United States' latest economic indicators cast a shadow over traders' market mood. Let's dive in: 

Inflation illustrated

The Big Apple Reacts

On Monday, April 1st, the Dow Jones Industrial Average (USA 30) experienced a decline as traders digested the United States' latest inflation figures and remarks made by Federal Reserve Chair Jerome Powell made the previous Friday, March 29th. Over the course of the trading day, the Dow fell by 0.6%, while the S&P 500 lost 0.2% in value. Bucking this trend, the tech-heavy Nasdaq (US-TECH 100) showed a modest rise of 0.2% yesterday.

Regarding market indicators, recent data released after Friday's market closure revealed that the personal consumption expenditures (PCE) price index rose by 0.3% in February, slightly below the forecasted 0.4%. The annualised headline inflation rate increased to 2.5%, which was within the expected range.

Furthermore, the core PCE price index, excluding food and energy prices, increased by 0.3% in February, matching forecasts. The core inflation rate over the preceding 12 months stood at 2.8%, consistent with expectations, following a revision of January's rate from 2.8% to 2.9%.

Fed Chairman Jerome Powell, reiterated the American central bank's desire to see a further drop in consumer prices before it considers cutting interest rates. However, Powell underscored the importance of not delaying action excessively, which could result in unnecessary economic vulnerabilities. The impact of the Federal Reserve’s decision calculus on major New York Indices is as yet unclear.

Crypto Shifts

Cryptocurrency markets may currently be sailing through choppy waters. In contrast to the general trends observed in recent months, some major digital currencies are on a downtrend. As of the time of writing, Bitcoin (BTCUSD) is down 4.7%, while Ethereum (ETHUSD) has dropped by just under 4.2%. This downward movement was influenced by a prolonged holiday weekend in certain regions, although continuous 24/7 crypto trading maintained market activity.

The market's focus today may be on the ISM factory index, which saw a 2.5% improvement in March, reaching 50.3%. A reading above 50% indicates expansion in the manufacturing sector, marking a significant shift after 16 consecutive months of anticipated declines. Investors interpret this positively, seeing it as a signal that the economy is robust, despite recent increases in interest rates. If inflation remains manageable and the Federal Reserve refrains from rate cuts to stimulate the economy, the likelihood of rate cuts diminishes.

Bond traders are now pricing the probability of a rate cut in June 2024 at less than 50%, a surprising change from earlier expectations. Initially, investors anticipated up to six rate cuts, but the prospect of none within two quarters is becoming increasingly plausible.

The correlation between cryptocurrencies and technology/high-growth stocks has contributed to their recent surge, driven partly by expectations of lower interest rates. However, as this narrative weakens, cryptocurrency values are declining. The emergence of Bitcoin exchange-traded funds (ETFs) had been a significant driver, attracting substantial capital into the sector. However, recent weeks have seen some outflows, although these reversed towards the end of the week.

Ethereum's value has been buoyed by speculation surrounding potential ETF approvals in the coming months. Yet, uncertainties within the current regulatory landscape cast doubt on this expectation. If ETF approvals fail to materialise, it could lead to further declines in crypto values. (Source: Yahoo Finance)

Summing It Up

In conclusion, markets from Wall Street to cyberspace are navigating choppy waters as economic indicators sway investor sentiment. With the Dow Jones slipping amidst inflation concerns, Powell's cautious approach underscores the need for prudence. In the crypto realm, fluctuations persist, influenced by market dynamics and regulatory uncertainties. As investors brace for continued turbulence, staying vigilant and adaptable remains paramount in navigating these uncertain times.

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