Fed Rate Cut Expectations, Defensive Stocks Rally, Bitcoin Bounce

We’ve discussed Q4 Atlanta Fed estimate currently at +5.1%, and despite a jobless recovery (unemployment 4.4%), AI is clearly having a strong impact. As US short end yields rise, reducing Fed rate cut expectations, the economic strength is clearly supporting the commodity boom. We have key data from China on Monday, strength there would add to the bullish trend.

S&P 500 makes another new all-time high, but defensive stocks rally 5% in a few sessions while tech remains flat. Just another warning signal of rotation away from risk. S&P 500 and Nasdaq trendline supports remain nervously close (Chart 1, Nasdaq, Bloomberg)

Two key risks for the next 24 hours. Polymarket prices a 73% chance the court rules Trumps tariffs illegal, and 3 Fed presidents speak (higher risk due to the Powell investigation noise).

While CPI came in as expected (2.7%, core fell to 2.6%), the better barometer of consumer spending is PCE which remains more concerning, ‘supermarket inflation’ also jumped the most since July 2022, and NFIB (small business pricing) remains far more elevated (Chart 2, Bloomberg)

Japanese 30-year bond yield rallies to another all-time high. The higher it goes the more likely the need for the MOF to sell US treasuries to service its debt. More bond risk, more precious metal demand.

Even Bitcoin is bouncing back, finally breaking above resistance. (Chart 3, Bitcoin, Bloomberg)