European and US stock futures are trading higher as traders believe that the moment has come for central banks to relax off the rate hiking cycle. Yesterday’s US PPI data gave further evidence for this, confirming that the inflation bubble has begun to deflate. This comes on top of the US CPI figure earlier this week, which mirrored the similar message. Traders are now examining these data pieces to see whether there is any damage in putting all of their eggs in one basket, specifically, backing riskier assets. We say this because the volatility index has fallen not just below the 18-handle, but has also closed at its lowest level in almost a year. This index was well anchored at the apex of the US financial crisis, which was fueled by the belief that the significant rise in US interest rates would result in a high number of market causalities.
Bank Earnings
Speaking of the US financial sector, JP Morgan Chase will report on its quarterly earnings today. The bank was largely focused at the close of the previous fiscal year on laying up a huge reserve of $1.4 billion to cushion any impact from increasing lending charges, since economic circumstances were only derailing. The possibility of the US economy entering a recession remains a possibility, as we have heard both the Fed and the US Treasury Secretary. But, the main thing we want to hear from the bank during this earnings season is how it believes credit growth is and what risks the banks see with the ongoing credit crisis, given that consumer interest rates are still sky high and are likely to remain so for some time.
Economic Data
On the economic front, we have some fireworks that will cause more volatility in forex, particularly for the dollar index. The dollar has lost its lustre, and it has suffered significant losses this week as a result of the US Weekly Jobless Claims data and inflation figures. We have the US retail sales report today, and any weakness in this economic statistic will only encourage traders to put additional short bets on the dollar index, since it increases the probability of the Fed not raising interest rates in June. We believe the Fed is still well-positioned to raise interest rates by another 25 basis points at their next meeting, but anything beyond that is unlikely. However, if consumer confidence and retail sales continue to deteriorate, the dollar index may suffer more as the Fed considers raising interest rates at their next meeting—though the prospects of this happening remain slim.
Ethereum
On the crypto front, the focus is mostly on Ethereum, the second largest crypto currency by market capitalization. The much-anticipated upgrade went very well, and the lack of redemptions, which many traders were concerned about, demonstrates that there are many investors who are serious about sustaining this asset. Furthermore, the update has shown that you may stake your Ethereum and then quickly exit it. However, traders should be aware that we are not yet completely out of the woods since a large amount of Ethereum was staked and the queue of coming out of this is rather large, so a price pullback may occur.
Bitcoin
Bitcoin, which very much sets the narrative for the whole sector, is still on pace to continue moving in the right direction. The price is still defending its $30,000 level, which is a good sign. Having said that, many believed that Bitcoin hitting the $30,000 price level would result in a significant rally for the cryptocurrency, and we have not seen any indication of this, which is clearly cause for worry or indicates a little weakening in the market.
