PRICES ROSE MODESTLY

In March, wholesale prices rose less than expected, as the producer price index increased by 0.2%, below the anticipated 0.3%. This was a decrease from February’s 0.6% rise. Core PPI, which excludes food and energy, also rose by 0.2%, meeting expectations, while excluding trade services, saw a 2.8% year-over-year increase. The rise in March was driven by services, particularly with a notable 3.1% surge in securities brokerage and investment-related fees. Moreover, good prices decreased by 0.1%, while energy costs fell by 1.6%, despite recent increases. Nevertheless, despite this, the prices for final demand food and goods excluding food and energy increased by 0.8% and 0.1% respectively.

FORECASTS SHAKED UP

Following the release of the latest inflation data, investors are now predicting that the Federal Reserve will only cut interest rates once this year, starting in September. Despite earlier expectations for six cuts totaling 1.5 percentage points, the recent uptick in inflation, coupled with robust job creation, caused Treasury yields to increase significantly, which in turn, prompted a reevaluation of the economic outlook, moving away from multiple rate cuts. This unexpected turn of events has led to a shift in market sentiment, with swap contracts now forecasting a year-end interest rate only 40 basis points lower than the current 5.33%. In addition, options traders are betting on just one rate cut, and Wall Street banks are revising their forecasts accordingly.

BELOW EXPECTATIONS

As reported by the U.S. Department of Labor, last week, the number of U.S. citizens applying for unemployment insurance benefits increased by 211,000. Despite the rise, it is worth noting that this figure was slightly lower than the initial estimate of 215,000 and down from the previous weekly gain of 222,000, as revised. The advance seasonally adjusted insured unemployment rate was 1.2%, while the 4-week moving average was 214,250, showing a decrease of 250 from the previous week’s revised average. Additionally, Continuing Claims saw an increase of 28,000 to 1.817 million in the week ending March 30. The slight rise in applications suggests a level of job market volatility, with the figures continuing to be monitored closely by policymakers for potential implications in regards of interest rates approaches and the overall economy.

BITCOIN OPTIONS DELAYED

The Securities and Exchange Commission (SEC) has postponed a decision on approving options trading on bitcoin exchange-traded funds. The SEC extended the review period for the New York Stock Exchange’s proposal to allow options trading on the Bitwise Bitcoin ETF and the Grayscale Bitcoin Trust. Let’s remember that options trading enables investors to buy or sell assets at set prices, often used for speculation, risk management, or income generation. Options trading on bitcoin futures ETFs has been allowed since 2021, and stakeholders, including Grayscale CEO and the Cboe exchange, support the idea of options trading on spot bitcoin funds. Moreover, with a surge in cryptocurrency investments following approval of bitcoin ETFs, the SEC has set a new deadline of May 29 for the decision.

INTERNATIONAL NEWS

The European Central Bank maintained interest rates unchanged for the fifth consecutive meeting, with speculation mounting for potential rate cuts happening soon. The ECB indicated a willingness to reduce monetary policy restrictions if inflation appears to be converging toward the target consistently, and June is being closely watched as a possible starting point for rate adjustments following a reduction in medium-term inflation projections. Moreover, following this announcement, market expectations suggest a 25-basis-point cut at ECB’s next meeting, contrasting with the U.S., which seems to be moving further away from cutting any rates soon. Meanwhile, Sweden’s central bank Deputy Governor warned that a lack of rate cuts by the U.S. Federal Reserve could pose challenges for the Riksbank and the ECB. The potential impact could be a surge in inflation fueled by a weakening Swedish krona.