Global markets were abuzz last night following the unexpected announcement of the U.S. Consumer Price Index (CPI) annual growth rate, which registered a surprising 2.7%—significantly below the market’s 3.1% forecast. Furthermore, core inflation plummeted to its lowest level since early 2021. This unexpected moderation in price pressures caught many off guard, likely including policymakers at the Federal Reserve, and was swiftly interpreted by market participants as opening the door for more aggressive interest rate cuts. Consequently, the probability of a January rate reduction saw a noticeable uptick, triggering substantial rallies across both U.S. stock markets and the cryptocurrency sector, with Bitcoin (BTC) briefly surging past the $89,000 mark.
However, the euphoria among cryptocurrency investors proved fleeting, lasting less than two hours. Bitcoin, mirroring its behavior from earlier in the week, experienced a rapid ascent followed by an equally sharp decline, failing to sustain the $88,000 level before retreating to $86,000. This peculiar volatility stood in stark contrast to traditional markets, where U.S. stocks held steady and gold soared above $4,300. This stark divergence points to an independent market dynamic within the crypto sector, often characterized as a “liquidation event” or “long-short squeeze.” The dramatic four-hour period of rapid gains and subsequent losses resulted in a staggering $210 million in liquidated positions, strongly suggesting coordinated market manipulation.
The market’s attention now pivots to the Bank of Japan (BoJ), which is set to announce its latest interest rate decision this morning. Given the BoJ’s recent hawkish rhetoric, an interest rate hike decision is widely anticipated, almost a foregone conclusion. The critical question, however, is whether the BoJ will signal the commencement of a sustained “rate hike cycle.” Should this hike indeed mark the beginning of a prolonged tightening phase, it would represent a profoundly bearish development. Such a move would effectively spell the end of the long-standing carry trade era, ushering in a period of significant global liquidity tightening.
Conversely, if the BoJ frames this hike as a singular, one-off adjustment, it could trigger a “sell the rumor, buy the news” scenario, transforming perceived bad news into a positive catalyst. This, combined with the cooling U.S. inflation data, could pave the way for a robust year-end “Christmas rally” across various asset classes. Ultimately, the immediate future of global markets hinges critically on the precise wording and forward guidance provided by the Bank of Japan today.
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