As the US inflation indices such as CPI and PPI fell below expectations, Bitcoin experienced significant volatility due to an unexpected geopolitical crisis. While Bitcoin prices had shown a strong rebound, temporarily exceeding $110,000 last week, they retreated following Israel's attack on Iran on the 13th, ultimately rising only 1.2% for the week.
The most notable change this week at the macroeconomic level was the US-China second tariff negotiation. This opportunity arose when President Trump directly called President Xi Jinping due to issues with automobile production and rare earth supply in the US.
The negotiation teams met in London and negotiated for two full days, ultimately only securing a 6-month limited export of rare earth elements from China. Restrictions still remain on the seven rare earth elements that China controls 95% of the export. As compensation, the US agreed to allow jet engine exports.
Overall, the negotiation is predominantly viewed as exposing clear weaknesses in the US position, as regardless of Trump's hardline approach, the US lacks a winning card when China plays its rare earth element card. The US is now pondering how to handle the 90-day tariff suspension scheduled for early July, finding it challenging to maintain the "strong America" slogan while having already exposed vulnerabilities in tariff negotiations.
CPI and PPI Unexpectedly Underperform
The US Consumer Price Index (CPI) and Producer Price Index (PPI) both fell below expectations. While May inflation was anticipated to be relatively high due to base effects and universal tariff applications, both headline and core inflation recorded lower-than-expected figures.
The low inflation was primarily attributed to energy prices, which showed -1.0% and 0.0% month-on-month changes in CPI and PPI respectively, significantly influenced by persistently low oil prices. The jet fuel component in PPI, which the Federal Reserve references in the Personal Consumption Expenditures (PCE) price index, also declined by 1.1% month-on-month, contributing to lower inflation.
As signals emerged of stabilizing inflation, which had been a potential economic trigger, expectations of interest rate cuts immediately surfaced. The CME FedWatch Tool's probability of rate cuts within the year increased from one to two, with the potential timing slightly moved forward to September and October.
However, this positive atmosphere quickly dissipated when Israel launched an attack on Iranian nuclear facilities, high-ranking officials, and scientists on the morning of the 13th. Bitcoin prices retreated to around $102,600 within hours, while gold prices surged nearly 4% in a single day.
Israel's attack reasons were twofold: first, Iran's violation of international agreements and advancement in independent nuclear weapon development, and second, to influence a regime change by installing a government they can trust.
The attack is considered largely successful, with 200 fighter jets conducting precise strikes and the Mossad intelligence agency's significant contribution, resulting in multiple casualties among Iranian nuclear facility personnel and key scientists. Iran has responded with drone and ballistic missile attacks, and the conflict continues into its third day.
Initially, the US supported Israel and criticized Iran's negligence in nuclear negotiations. However, by the morning of the 16th, they were more focused on resolving the situation, concerned that failure to quickly end the Israel-Iran war could reignite inflationary pressures after they had barely managed to control prices by suppressing oil prices.
A Complex Week with Real-time Middle East Conflict and FOMC Dot Plot
This week, the Federal Reserve will hold the Federal Open Market Committee (FOMC) meeting to decide on the benchmark interest rate, with a 99% likelihood of maintaining the current rate. The economic outlook and dot plot will be more significant.
With market expectations set on two rate cuts within the year, if the dot plot released on the 19th falls short of these expectations, it could exert downward pressure on Bitcoin prices. The focus will be on closely monitoring the Israel-Iran war's developments and the FOMC results.
If the Middle Eastern conflict subsides faster than anticipated, there's a possibility that the crypto industry's previously frozen positive developments might simultaneously thaw.
First, a bill related to stablecoin activation is scheduled for a Senate vote on the 17th. Recent news also indicated that Amazon, Walmart, and Bank of America are preparing to launch stablecoins. Stablecoin-related issues appear to be progressing as the industry expected.
The U.S. Securities and Exchange Commission (SEC) seems to be on the verge of approving the spot ETF for Solana (SOL), but the sudden news of war has prevented it from receiving sufficient attention. There is also growing interest in whether Ethereum (ETH), which showed a strong upward trend last week, can once again gain momentum for a rebound. We wish our readers a successful investment this week as well.
