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January’s CPI report dropped this morning and it came in hot.

Initial reaction was a repricing of interest rate expectations to higher rates for longer, causing the dollar to strengthen and risk assets to move lower. The Nasdaq and bitcoin were both down by nearly 1.4%.

By lunchtime at 12 ET, the move had completely reversed. The Nasdaq and bitcoin have turned green but remain volatile while the dollar turned red.

Markets reacted positively to news that Trump and Putin had a “productive” call. Many speculate that the war in Ukraine may be coming to a swift end, which would likely ease global energy prices as unsanctioned Russian oil comes back online.

January CPI Report: Hotter Than Expected, Market Volatility Ensues 🔥

📌 Synopsis:

January’s CPI report came in hotter than expected, reinforcing concerns that inflation is still sticky and the Fed will keep rates higher for longer. Headline inflation rose 0.5% month-over-month (m/m) (vs. 0.3% expected), while core CPI increased 0.4% m/m. The annual headline inflation rate ticked up to 3.1% (from 3.0% prior). Markets initially sold off sharply, with the Nasdaq and Bitcoin both down 1.4%, but reversed course by midday, supported by positive geopolitical developments in the Russia-Ukraine war.

📊 The Details:

• 🔥 Headline CPI: +0.5% m/m (3.1% YoY), exceeding expectations of 0.3% m/m and 2.9% YoY.

• 📈 Core CPI (ex. food & energy): +0.4% m/m (3.9% YoY), vs. expectations of 0.3% m/m.

• 🏡 Shelter Inflation: +0.6% m/m, still accounting for the largest portion of CPI gains. Rent and owners' equivalent rent rose 6% YoY, contributing over 60% of the total CPI increase.

• 🥩 Food Prices: +0.4% m/m, led by rising grocery prices, particularly eggs, dairy, and meat. Restaurant prices also climbed due to higher labor and supply costs.

• ⛽ Energy Prices: +2.2% m/m, driven by a jump in gasoline prices (+3.5%). However, natural gas and electricity costs were more stable.

• 🚗 Auto Insurance: +1.5% m/m, another major inflation driver. Used car prices showed slight declines (-0.2%), but new vehicle prices remained elevated.

• 🎟️ Services Inflation: Remains sticky at +0.6% m/m, reinforcing concerns that underlying inflation is not cooling fast enough.

🧐 Key Takeaways:
✔ Core inflation remains stubborn, above the Fed’s 2% target.
✔ Shelter costs dominate CPI gains, showing no meaningful relief.
✔ Energy and food costs surged, adding to the consumer burden.
✔ Market expectations for rate cuts in 2025 have been pushed out further due to persistent inflation.

🚨 WHY IT MATTERS:

• 💰 The Fed Is Cornered: With inflation still above 3%, the Fed has no room to cut rates anytime soon. The “higher for longer” narrative is back in full force.

• 📉 Initial Market Selloff: The S&P 500, Nasdaq, and Bitcoin all fell sharply at market open as bond yields surged (10-year Treasury yield spiked above 4.6%).

• 💵 Stronger Dollar = Risk-Off Sentiment: The U.S. dollar rallied as rate expectations shifted higher, making risk assets less attractive.

• 🛢️ Energy Prices Could Ease If Ukraine War Ends: Later in the day, news of Trump-Putin talks triggered a reversal in risk assets, as hopes for a quick resolution in Ukraine could bring unsanctioned Russian oil back online and lower inflationary pressures.

📌 Bullet Point Recap

✔ Headline CPI: +0.5% m/m, 3.1% YoY (hotter than expected).
✔ Core CPI: +0.4% m/m, 3.9% YoY (sticky inflation persists).
✔ Shelter prices up 6% YoY, driving most of the inflation increase.
✔ Markets dumped early but reversed midday on Trump-Putin peace talk rumors.
✔ 10-year Treasury yield spiked to 4.6%, delaying rate cut expectations.
✔ Bitcoin and Nasdaq down 1.4% early, but turned positive by noon.

📉 Trading Implications

• Tech Stocks & Crypto Volatility: Growth stocks and Bitcoin remain rate-sensitive—expect more swings as Fed expectations shift.

• Bond Market Reaction: Higher CPI prints mean rising yields—bad news for rate-sensitive sectors (REITs, utilities).

• Commodities Watch: If Ukraine war de-escalates, oil prices could fall, easing some inflation pressure but hurting energy stocks.

• Short-Term Play: If inflation remains stubborn, bonds and defensive stocks (consumer staples, healthcare) could outperform.

🔥 Bottom Line: The January CPI report confirms inflation is not cooling fast enough. The Fed will hold rates higher for longer, keeping markets volatile and delaying the rate cut fantasy. Stay nimble.

Trump & Putin Initiate Immediate Ukraine Peace Negotiations

🇺🇸 Trump’s Shift on Ukraine: No NATO, No Pre-2014 Borders, No More U.S. Funding 🇺🇦

📌 Synopsis:

The Trump administration has officially pivoted away from long-standing U.S. commitments to Ukraine, signaling a major geopolitical shift. Defense Secretary Pete Hegseth announced that Europe must take the lead in funding Ukraine’s defense, the U.S. will not deploy peacekeeping troops, and a return to pre-2014 borders is off the table. This came after Trump and Putin’s direct talks, where both sides agreed to immediate negotiations to end the war. The news sent shockwaves through NATO, Ukraine, and global markets, reshaping the future of the conflict.

📊 The Details:

• 💰 No More U.S. Funding Domination:

  • Hegseth: “The U.S. will no longer tolerate an imbalanced relationship where Europe relies on American taxpayers to bankroll Ukraine.”

  • Europe must now provide the majority of lethal & non-lethal aid.

• 🚫 No NATO Membership for Ukraine:

  • Trump’s administration rejected Ukraine’s bid for NATO membership, cutting off its strongest security guarantee.

  • Hegseth: “Security guarantees must come from capable European and non-European troops – not U.S. soldiers.”

• ❌ No Return to Pre-2014 Borders:

  • The U.S. declared it "unrealistic" for Ukraine to reclaim all occupied territories, including Crimea and the eastern Donbas.

  • Hegseth: “A peace deal must be based in realism, not illusion.”

• 🤝 Trump-Putin Talks:

  • Trump and Putin agreed to begin immediate negotiations to end the war.

  • Trump: “I will call President Zelenskyy right now to inform him of the conversation.”

💣 WHY IT MATTERS:

• 🌍 Europe Now on the Hook: NATO allies must fill the financial and military void, a major economic and political burden.

• 🇺🇦 Ukraine Cornered: Kyiv faces increased pressure to negotiate with fewer security assurances from the West.

• 🇷🇺 Russia Gains Leverage: Putin’s demands—no NATO membership and territorial concessions—are now U.S. policy.

• 🛢️ Oil & Energy Markets React:

  • A potential peace deal raised speculation about sanctions easing on Russian oil, which could bring supply back online and lower energy prices.

• 📉 Market Reaction:

  • European markets fell initially, fearing NATO instability.

  • Defense stocks dropped, while energy prices dipped on expectations of renewed Russian oil flows.

⚡ Bullet Point Recap

✔ Trump: U.S. won’t bankroll Ukraine anymore – Europe must step up.
✔ Ukraine’s NATO bid is dead – No U.S. security guarantees.
✔ Pre-2014 borders are “unrealistic” – Ukraine may lose territory permanently.
✔ Trump & Putin agreed to immediate peace talks.
✔ Oil prices dropped on hopes of Russian supply returning.
✔ Defense stocks fell as U.S. pulls back from military commitments.

💰 Trading & Investment Implications

• 🛢️ Oil Markets: If Russian oil returns to global markets, expect lower energy prices but potential pressure on U.S. shale producers.

• 📉 Defense Sector Hit: Lockheed Martin, Northrop Grumman, and other military contractors may face headwinds as U.S. defense commitments wane.

• 📊 European Bonds & Currencies: European countries will need higher defense spending, which could strain budgets and impact bonds.

• 💱 Russian Assets: Some investors are speculating that sanctions may be eased, potentially impacting Russia-linked assets and commodities.

🚀 Bottom Line: The U.S. is stepping back from Ukraine, fundamentally reshaping NATO, the war, and global energy markets.

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