US PPI came in on the soft side on Friday, vindicating the Fed’s dovish pivot and added downside skew to even more cuts to come. Negative revisions to previous data and a drop in core PPI (to 1.8% YoY) caused 10y yields to crater by 10bp on the session, steepening the 2/10s curve back to ‘just’ -20bp, and the 2/30s curve disinverting for the first time since last October. Front-end yields also benefitted from brewing geopolitical tensions, with US/UK join airstrikes against Houthin rebels leading to a 4% strike in crude oil at one point. Fed funds ended the session pricing ~165bps of rate cuts for 2024, a YTD record.

US stock and bond markets will be closed today for Martin Luther King Day, so focus might be on local EM markets post Taiwan’s presidential election results, and a string of Chinese credit, IP, and retail sales data due this week. Focus will also be on PBoC’s MLF monthly fixing, in particular after yet another set of very weak Chinese liquidity data on aggregate finance and new loans.

On the equity side, focus will be on earnings season where things will kick into full throttle during the weeks of January 22 and 29, where over 50% of the SPX market cap will be reporting their Q4 results. From a technical perspective, some early signs of fatigue are visible in the broad index after the recent moves, though we are nearing SPX’s ATHs at around 4818 where a weekly break above could signal a further bullish continuation

Over in crypto, the first 2 days of ETF trading saw +1.4bln of new inflows from the new ETFs, offset somewhat by GBTC’s -579mm of outflows as reported by Bloomberg ETF analyst Eric Balchunas. The volume and number of trades for the ETF remain impressive versus incumbent leaders such as SPY and QQQ, especially for an asset class that was so vilified by the mainstream public over the past 18 months.

While consensus appears to be blaming GBTC’s outflows for driving spot BTC prices back to $42k, that does not appear to corroborate well with the above data, with the move probably more of a general ‘sell-the-news’ behaviour that appears to be winning out in the current moment. Previous BTC futures and futures ETF launches led to periods of weakness for BTC — will we repeat the same fate once again this time around?

On the other hand, after spending the better part of the past 3–5 years talking down on crypto, it is somewhat eery and chilling to see Blackrock CEO Larry Fink going on a ‘public roadshow’ to wax lyrical about Bitcoin as per his very public TV interviews and statements. Some of his 180-degree about-face comments include:

  • Speaking on CNBC’s Squawk Box on the newest spot ETFs: ETFs were seen as a way to give investors exposure to a young and risky asset class. But the value blockchain technology provider goes beyond bitcoin, and the new ETFs are just a precursor to broader tokenization of other assets.
  • “ETFs are step one in the technological revolution in the financial markets,” he said. “Step two is going to be the tokenization of every financial asset.”
  • “I believe it goes up if the world is frightened, if the people have fearful geopolitical risks, they’re fearful of their own risks,” said Fink. “It’s no different than what gold represented over thousands of years. It is an asset class that protects you.”
  • It is a ledger, but it’s an international ledger that’s cross-border, and bigger than any government.
  • The advent of the Bitcoin ETF is an example that we are legitimizing this asset class.

Even for a jaded finance old-timer like myself, I am still impressed with how quickly people’s opinions can turn on a dime when self-interests are involved. Let’s hope we can keep the inflows coming!

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