Bitcoin ETF’s gear up for first day of trade as markets await key US CPI release

• European markets head higher, although risks remain
• Bitcoin enters the mainstream, as ETF products gear up for the open
• US inflation set to dominate, with the chance of a March rate cut at risk

European markets are enjoying a strong start to trade today, as markets gear up for a volatile end to the week thanks to the impending US inflation and bank earnings. Falling treasury yields continue to help sentiment for risk-assets, with the US 10-year yield easing lower ahead of today’s crucial CPI release. Comments from Fed member Williams noted that more work was needed to get prices back down to target, highlighting the potential volatility ahead given optimistic market expectations for six rate cuts this year.

Cryptocurrencies have finally managed to make their way into the mainstream, with today representing the first day of trade for the 11 spot Bitcoin ETF products approved by the SEC yesterday. While there has been widespread interest in this notoriously volatile investment category in the past, the approval of these ETF products allow access to Bitcoin while minimizing the concerns of self-storage or custody risk. Compared against currencies and commodities, Bitcoin hold an advantage in terms of supply, with 93% of all Bitcoin already mined. Bitcoin enthusiasts will undoubtedly be excited at the potential impact this swathe of new funds could have on price given the inability to adjust supply to meet that new demand. With widespread speculation that we could see billions of dollars’ worth of inflows on the first day of trading, all eyes will be on Bitcoin as we look for signs of buying pressure from Wall Street.

Today sees the latest US inflation data take centre stage, with sentiment for US stocks expected to remain highly sensitive to any changes in the outlook for monetary policy going forward. The widely perceived dovish nature of the December FOMC meeting helped maintain a rather optimistic view that we will see the Fed comment a new phase of monetary easing in March, with the CME Fedwatch tool attributing a 69% probability of a first rate cut in just over two-months’ time. However, with both headline and core CPI likely to remain well above the 2% by that meeting, today could represent a wake-up call given the potential for an increase in headline CPI. The Fed’s favoured core PCE inflation gauge is the only metric which is currently tracking at a sub 2% rate over the past six-months, and thus the Fed are faced with a decision over whether to cut rates at the very first sign of a return to normal or await additional signs that CPI will hit its target.