February 16 – February 20 Macro Highlights: Inflation and GDP—Can They Continue to Fuel Rate Cut Expectations?
The second round of U.S.-Iran negotiations is a potential risk point! China’s market holiday may further reduce liquidity during Asian trading hours!
This past Monday coincided with Chinese New Year’s Eve and U.S. Presidents’ Day, resulting in thin trading volumes and low liquidity across Asia and the U.S. Key macro events this week are concentrated from Tuesday onward and on Friday.
1. On Tuesday, the U.S. and Iran meet in Switzerland for their second round of negotiations. Ahead of the talks, both sides are preparing their negotiating leverage through military exercises, carrier deployments, and strategic international messaging.
The critical focus is on the outcome of Tuesday’s talks: if progress is made, it would be market-positive. However, a comprehensive resolution in one session appears unlikely. Be alert to the possibility that, should negotiations collapse, the U.S. might signal Israel to launch direct strikes on Iran, while its three aircraft carriers could coordinate military action. Additionally, watch for whether Iran’s navy will fully blockade the Strait of Hormuz.
In the worst-case scenario of military conflict, global energy prices could spike sharply. With risk and safe-haven markets already operating under low liquidity, these developments demand heightened caution.
2. On Friday, the December PCE price index and the initial Q4 GDP data will be released simultaneously—both must be analyzed together.
Current expectations: December PCE is forecast to rise slightly above the prior reading, while Q4 GDP is expected to show a clear decline versus prior levels.
Taken together, this data suggests slowing U.S. economic growth alongside persistent inflation that has not yet fully eased. While this supports a modest upward revision in rate cut expectations, it is unlikely to trigger a strong or rapid shift toward aggressive rate cut pricing. Personally, I expect at most a further increase in the probability of a June rate cut.
Currently, the probability of a June rate cut stands at 50.8%, placing it in a period of uncertainty. A breach above 60% signals growing optimism; above 70% indicates stronger market confidence; above 80% implies markets are beginning to price in a June cut; and above 90% means rate cut expectations are effectively locked in.
Therefore, if Friday’s data lifts the June rate cut probability to 60% or even 70%, it would deliver a significant boost to risk assets.
Additionally, if Trump seeks stronger economic data more conducive to rate cuts, Q4 GDP would ideally remain near 4%, while PCE should fall below 2.8%—though this assumes fully manipulated data, which is highly unlikely.
3. All trading days this week fall within China’s Spring Festival holiday period. The Chinese stock market remains closed, while Hong Kong markets reopen on Friday—meaning half of Asia’s financial markets are effectively shut.
China’s market closure will further reduce liquidity during Asian trading hours. For cryptocurrency markets, this may suppress trading volume for #Bitcoin during Asian session hours.
Weekly Summary:
During China’s Spring Festival holiday, Asian session momentum for crypto markets remains weak. Whether U.S. session activity can provide stronger upward momentum for BTC remains uncertain—hope rests primarily on Friday’s data and whether it can further increase rate cut probabilities.
For Asian equity markets, the week-long holiday may lead to delayed negative sentiment, with potential positive effects concentrated next week—monitor accordingly.
For key U.S. market events this week, follow @MSX_CN’s weekly report below.
