Before the key US inflation indicator PCE Price Index was released on Thursday, the overnight US market seemed somewhat lackluster.
Whether in the stock market, bond market, or foreign exchange market, traders are hesitant to act recklessly as the Federal Reserve's most favored inflation indicator is about to be released. This also made Bitcoin, which skyrocketed overnight, the undisputed biggest highlight in the eyes of Wall Street traders on Wednesday - the world's largest cryptocurrency rose above $64000 overnight, with a cumulative increase of over 44% this month.
Market data shows that the three major US stock indices generally closed slightly lower on Wednesday. Although Nvidia's financial results fueled the AI boom and pushed the US stock market further to historic highs last week, it seemed difficult for the stock market to maintain its momentum before the release of the PCE price index this week - currently, the Dow Jones Industrial Average has seen a downward trend for three consecutive trading days.
As of the overnight closing, among the three major indexes, the Nasdaq Composite Index, mainly composed of technology stocks, fell 0.5%, with the largest decline. The Dow Jones Industrial Average fell 23 points, a decrease of 0.1%; The S&P 500 index fell 0.2%. On Wednesday, Nvidia's stock price fell 1.3% in the "Big Seven" US stock market. Google's parent company Alphabet's stock price fell 1.8%, while Apple's stock price fell slightly by 0.7%.
Industry surveys predict that the US Personal Consumption Expenditure (PCE) Price Index, which will be released on Thursday, is expected to show an overall increase of 0.3% month on month and 2.4% year-on-year in January. Core PCE increased by 0.4% month on month and 2.8% year-on-year. Although year-on-year indicators are expected to decline compared to the previous month, the core PCE may experience its largest month on month increase in a year
Keith Buchanan, Senior Portfolio Manager at GLOBALT Investments, said, "Now, the profit catalyst brought by the US stock earnings season may have become a thing of the past, and the market may experience some weakness. It is clear that people need to look at the trajectory of inflation and the Federal Reserve's response, focusing on the degree of official rhetoric and whether policies that maintain high interest rates for a longer period of time will be implemented."
Buchanan said, "The market will definitely respond strongly to any signs or signs of local or overall inflation rebound."
In the US bond market, the yield on US bonds of various maturities generally fell overnight, but overall it remains at a recent high level. With a series of hot US economic data in the past few weeks continuing to cool expectations of the Federal Reserve's interest rate cut, many market participants have begun to realize that pushing inflation to the Fed's target of 2% may be much more difficult than imagined a few months ago.
As of the end of the New York session, the 2-year US Treasury yield fell 5.6 basis points to 4.648%, the 5-year US Treasury yield fell 5.2 basis points to 4.267%, the 10-year US Treasury yield fell 3.5 basis points to 4.271%, and the 30-year US Treasury yield fell 2 basis points to 4.409%.
Marvin Loh, Senior Global Macro Strategist at Dow Jones, said that if inflation remains at its current pace, the 10-year US Treasury yield may range from 4.5% to 5.0% by the end of the year. He pointed out that if we continue to see the core PCE price index increase by 0.3% and 0.4% month on month, it will indeed be difficult for the Federal Reserve to do its work in the second half of this year. This level of inflation is still too high, and it may not even be reassuring to believe that you are moving in the right direction.
Kevin Flanagan, head of fixed income strategy at WisdomTree, pointed out that "a group of Federal Reserve decision-makers have been hinting that interest rate cuts may not be possible until later this year. The market is finally starting to take this seriously. It is more difficult for inflation to reach target levels than expected, and the 10-year Treasury yield may rise to 4.5% next."
In the foreign exchange market, traders also experienced a surge of undercurrents before the release of PCE price data. The US dollar index rose 0.12% late overnight to 103.96, although the increase is not significant, the implied volatility indicator in the foreign exchange market is rapidly rising. The implied volatility used by banks to price three-month options against the euro and the US dollar reached 6.01 on Wednesday, the highest in two weeks, breaking the recent decline in foreign exchange market volatility.
Brad Bechtel, the global head of forex at Furui, pointed out that the increase in forex volatility on Wednesday may be due to "hedging prior to the release of inflation data" or due to month end cash flows.
Interestingly, just as the stock and bond markets were struggling to cope with tonight's highly anticipated PCE price index, Bitcoin became a lightning bolt that shattered the calm night sky overnight. On Wednesday in New York, Bitcoin briefly broke through the $64000 mark, reaching a new high since November 2021. Previously, the historical peak of Bitcoin was over $69000 created in November 2021.
Against the backdrop of only the last trading day remaining in February, Bitcoin is expected to achieve its largest monthly increase since December 2020. The upcoming halving of Bitcoin has boosted market optimism, while the large influx of funds into Bitcoin ETFs has also led to a surge in coin prices. Zaheer Ebtikar, founder of cryptocurrency fund Split Capital, pointed out, "We are starting to see a very obvious fear of missing out on the market, and more and more people believe that they should buy."
According to statistics from Coingecko, the cryptocurrency exchange, the total market value of the cryptocurrency market has risen again to over $2 trillion after nearly two years, driven by the demand for Bitcoin purchases driven by ETFs.
Compared to Nvidia, which once had a market value of $2 trillion in the previous week's session, this new wave of AI and the former virtual currency trend seem to be shining brightly and dimly at this critical moment. As for who can laugh longer behind these two market trends? Who could be just a mirage woven by foam? Let time give us the answer