Bitunix Analyst:CPI Gives Markets Breathing Room—But High Deficits,the Yen,and Energy Risk Keep Pushing Long-Term Cost of Capital Higher

August 13th. In the United States, the July CPI increased by 0.1% monthly and 3.4% annually, with the core CPI up by 2.5% annually. Overall inflation remained moderate as the decline in energy prices offset some of the upward pressure from housing costs. After the data was released, the market's pricing of a September Fed rate hike decreased from about 50% to around 40%, easing short-term policy pressure.

However, this CPI data is not sufficient to directly translate into dovish expectations. The U.S. fiscal deficit continues to expand, with a cumulative deficit of nearly $1.8 trillion in the first 10 months and a national debt approaching $40 trillion, leading to rising interest payments. Against this backdrop, the U.S. needs to continue issuing a large amount of government debt. The yield of the 10-year U.S. Treasury bond auctioned this time has risen to a high not seen since 2007, with the 30-year yield approaching 5.25%, reflecting that the long-term funding cost is driven by fiscal supply, inflation stickiness, and market risk premium.

Therefore, the key in the current U.S. interest rate market is no longer just whether the Fed will hike rates in September, but whether long-term yields will continue to rise due to the fiscal deficit and government debt supply even if the Fed keeps rates unchanged. This also means that financial conditions may not necessarily improve in sync with the policy rate cut, and long-term yields remain a significant source of pressure for overvalued, high-leverage assets.

On the Asian front, the yen once again approached the 160 level, with Japan's July PPI increasing by 7.2% year-on-year, leading to a rise in expectations of a September rate hike by the Bank of Japan. If Japanese monetary policy further normalizes, coupled with the narrowing of the JPY-USD interest rate differential, global fund allocation and yen carry trades may be affected.

Gold benefited from the reduced end-of-hike risk, a weaker U.S. dollar, and regained support from fiscal uncertainty. However, it is currently closer to a tactical rebound driven by rate expectations rather than a simple rate cut trade. The upcoming Jackson Hole meeting, inflation, and employment data will still determine whether the gold market can continue its momentum.

On the other hand, the Russia-Ukraine conflict is reintroducing energy and food supply risks to the global market. Russia and Ukraine have recently been attacking Black Sea ports, energy facilities, and commercial ships. Ukraine is in the peak season for grain exports, and if Black Sea shipping is further disrupted, it could push up wheat and related food prices, complicating the existing energy inflation risk.

Overall, the July CPI reduced immediate pressure on the Fed to hike rates, but it did not eliminate the capital cost constraints posed by high U.S. deficits, debt, and long-term yields. The focus of global asset pricing will gradually shift to the tug of war between the forces of "whether inflation will continue to cool" and "whether fiscal supply will push up long-term rates." For high-volatility assets like Bitcoin, short-term attention is still needed on U.S. dollar liquidity and long-term U.S. Treasury yields, rather than just observing the Fed's policy rate itself.