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Risk assets have taken a dive lower ahead of NVDA’s earnings on Wednesday and the monthly PCE Inflation report on Friday.

NVDA has become a bellwether for risk assets broadly, as its revenue and outlook reflects the optimism and aggression of the largest companies in the world, all of whom buy NVDA’s products in size.

Friday’s PCE report is considered the Federal Reserve’s guiding datapoint in their battle with inflation. Markets are expecting to see core PCE rise 2.6% y/y. A tick higher or lower than 2.6% will likely dictate market direction in the near term.

Crypto has been battered over the last week with bitcoin falling below key support at $90k and as low as $86k with most altcoins falling even more.

We’ll see some fireworks on Friday as the last trading day of the month and a major options expiry in addition to the PCE data.

Should crypto markets fail to recover ahead of the Friday market close, we’ll reconsider our full risk-on bias for the first time in nearly two years.

Bitcoin would need to climb over ~$92k and Solana over ~$160 for us to remain bullish from a technical analysis perspective.

What to Expect From Friday’s PCE Inflation Report – Rate Cut Hopes on the Line

🔹 The Synopsis:

The January PCE inflation report (due Friday) is expected to show continued disinflation, with core PCE falling to 2.6% (from 2.8%)—the lowest since June 2024. If the data aligns with expectations, it could calm fears sparked by a hot CPI report earlier this month, strengthening the case that inflation is gradually returning to pre-pandemic levels. However, the looming threat of Trump’s tariffs could reignite price pressures, keeping the Fed cautious on rate cuts.

🔹 The Details:

📊 Expected PCE Inflation Data (Friday’s Report):

• Headline PCE: 2.4% YoY (down from 2.6% in December).

• Core PCE (Fed’s preferred metric): 2.6% YoY (down from 2.8%) – lowest since June 2024.

• If the numbers match expectations, it would reinforce the Fed’s confidence that inflation is steadily cooling.

📉 Why It Matters:

• Fed’s rate cuts on hold: Persistent inflation earlier this year forced the Fed to delay easing policy. A cooler PCE reading would reduce concerns that progress on inflation has stalled.

• CPI vs. PCE discrepancy: The hot CPI report (3.3% core inflation) raised fears of re-acceleration, but PCE is the Fed’s preferred metric and may signal a different reality.

• Market expectations: If PCE comes in lower than expected, bond yields could fall, and stocks may rally on renewed rate cut hopes.

🚨 The Tariff Wild Card – Inflation’s Next Threat?

• Trump’s proposed tariffs on Mexican and Canadian imports, steel, aluminum, and other foreign goods could push inflation higher in the coming months.

• Tariffs act as a tax on imports, which raises costs for businesses and consumers.

• Economists warn that the tariffs could erase inflation progress, forcing the Fed to delay or reduce the scale of rate cuts in 2025.

🔹 Why It Matters for Markets:

• If PCE meets expectations (or is lower) → Stocks rally, bond yields drop, Fed may signal future cuts.

• If PCE comes in hotter than expected → Markets will price in higher-for-longer rates, stocks could dip.

• Tariffs remain the biggest inflation wildcard → If implemented, they could reverse inflation progress, forcing the Fed to stay hawkish longer.

🔹 Key Takeaways:

✅ Core PCE expected to slow to 2.6% – reassuring markets that inflation is cooling.
✅ Report could ease fears sparked by CPI’s unexpected jump earlier this month.
⚠️ Trump’s tariffs could re-accelerate inflation – forcing the Fed to stay restrictive.
📊 Markets are watching closely – lower inflation could revive rate cut bets, while any upside surprise would crush optimism.

🔥 Bottom Line: Friday’s PCE report could be the deciding factor for rate cut expectations. But even if inflation is cooling now, Trump’s tariffs could be the next inflationary wildcard.

February Consumer Confidence Sees Biggest Drop Since 2021 – Recession Signals Flashing?

🔹 The Synopsis:

U.S. consumer confidence plunged in February, with the Conference Board’s index falling to 98.3, well below the expected 102.3. This 7% decline marks the largest monthly drop since August 2021, fueled by rising inflation fears, tariff threats from President Trump, and weakening labor market expectations. The Expectations Index fell below recession territory for the first time since June 2024, while inflation expectations jumped to 6%.

🔹 The Details:

• Consumer Confidence Index: 98.3 (vs. 102.3 expected) – lowest reading since June 2024.

• Expectations Index: 72.9 (-9.3 points) – now below the threshold historically linked to recessions.

• Inflation concerns: 12-month inflation expectations jumped to 6%, up from 5.2% in January.

• Labor market:

  • Fewer consumers see jobs as “plentiful” (33.4% vs. 33.9% prior).

  • More consumers say jobs are “hard to get” (16.3% vs. 14.5% prior).

• Tariffs & Trade Tensions: Trump’s proposed tariffs on Canada and Mexico set to take effect in March could drive prices higher, further hurting confidence.

• Market Reaction:

  • Stocks dipped briefly before stabilizing.

  • 10-year Treasury yield fell 10 bps to 4.29%, signaling growth concerns.

• University of Michigan Consumer Sentiment: Also posted a 10% drop, with long-term inflation expectations at their highest since 1995.

🔹 Why It Matters:

🔻 Weak confidence signals economic slowdown – Historically, a drop below 100 often precedes economic contraction. If this trend continues, recession risks grow.

📊 Fed’s rate path uncertain – With inflation expectations rising and growth slowing, the Fed may pause on rate cuts, leaving markets in limbo.

🔥 Tariffs & inflation risks – If Trump's trade policies fuel another inflationary spike, the Fed could be forced to keep rates higher for longer, hitting growth sectors hard.

💰 Market Impact:

• Rate-sensitive stocks (tech, real estate) remain vulnerable.

• Defensive sectors (consumer staples, utilities) could see inflows.

• Gold & bonds may benefit from flight-to-safety moves.

🔹 Key Takeaways:

• Consumer confidence plunged to 98.3, lowest since mid-2024.

• Recession warning: Expectations Index hit 72.9, a danger zone.

• Inflation fears up: 6% inflation expectations, highest in months.

• Tariffs could worsen inflation, pressuring the Fed.

• Market volatility expected, with defensive assets gaining favor.

🛑 Bottom Line: The Fed is trapped—rate cuts might be off the table as inflation sticks around, but the economy is already showing cracks. Traders should brace for volatility.

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.