Cooler Than Expected CPI

Daily Updates:

• In a 68-30 procedural vote, the US Senate has chosen to advance the Guiding and Establishing National Innovation for US Stablecoins, GENIUS Act, pushing it towards one final vote before it becomes the first major crypto legislation to be passed in the US.
• Speaking on the Senate floor yesterday, Majority Leader John Thune echoed President Trump’s comments that the legislation would help make the US the “crypto capital of the world” and “bring cryptocurrency into the mainstream”. Thune also has set a goal of passing the stablecoin bill within days, hoping the House will send it to President Trump’s desk as soon as possible.

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• Additionally, according to the Majority Leader, there is “more work to be done” for Congress in regard to digital assets – a reference to a separate bill, the CLARITY Act which is currently being considered in the House. 
• On June 10, the US House Committee on Financial Services voted to advance the bill, which may set it up for a full House floor vote soon. 
• While the GENIUS Act is focused on stablecoins, the CLARITY Act focuses on crypto market structure, clarifying the respective roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating digital assets. 

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• President Donald Trump has declared that the US’s trade war with China is “DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND ME”. 
• In April, President Trump hiked tariffs on Chinese goods to 145%, to which Beijing responded with a levy of 125% on US products. Later in mid-May, the two sides agreed to a 90-day reduced tariff rate of 30% on Chinese goods and 10% on US goods. 
• According to President Trump’s post, the most recent deal will see the US impose a 55% tariff on China and China will impose a 10% tariff on the US. 
• Commerce Secretary Howard Lutnick said that the 55% tariff rate is not something that is new – rather, it comprises the existing 30% blanket US tariffs on China, plus the 25% tariffs on specific products that also were already in place. 
• Speaking to reporters yesterday Trump said "We made a great deal with China” and that "We have everything we need, and we're going to do very well with it. And hopefully they are too."

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• A cooler than expected CPI report yesterday has increased bets that the Federal Reserve will cut interest rates twice this year, after only a week ago where markets were pricing in 43 bps of rate cuts until year-end. The headline and core CPI rose 0.1% in May from the previous month – out of 73 economists surveyed by Bloomberg, none expected a core MoM figure that low. 
• Year-over-year, the headline rate ticked up to 2.4% from 2.3% (though still below expectations of 2.5%) and the core YoY rate came in below expected at 2.8%. 
• Much of the decline in core inflation was due to declining inflation in airfares, cars and clothing, as well as energy costs. 

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• Both the S&P 500 and BTC rallied on the softer CPI print, though US equities eventually ended the day lower at -0.27%, bringing an end to a three-day advance that had the Index a striking distance away from its ATH. 
• Treasury yields across the curve dropped, led by moves in shorter-maturities as the 2-year yield fell below 4% and the US dollar has now dropped to its lowest levels since late February 2022. 
• BTC and ETH also have pulled back after rallying immediately after the CPI release. Over the past 24 hours, BTC is down -1.71%, currently trading at $107K, while ETH is down by less (-0.4%), trading at  $2,760 respectively.

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• The moves in options markets have been more dramatic however – at-the-money implied volatility for short-tenor ETH options dropped from a high of 79% yesterday down towards 67% which has completely flattened yesterday’s inversion in the term structure of volatility. 
• With that decline, volatility smile skews have abated from their significant skew towards OTM calls across all tenors. The 7-day 25-delta skew has dropped from an extreme bias of 7% towards calls, which we highlighted in our ETH sentiment report yesterday here, to a much smaller 2% now. 
• Options with maturities less than 30 days for BTC are now all skewed towards OTM puts, though maturities beyond 30 days carry a neutral to slight bullish premium for call optionality. 

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• DeFi Development Corp. (formerly Janover Inc.) has hit a regulatory hurdle, having to withdraw its $1B securities offering, which would have been used to further build out its Solana treasury, after the SEC found it ineligible to file under Form S-3 due to a missing internal controls report in its latest 10-K. 
• Solana is down 3.5% overnight, consistent with the slight pull back across crypto tokens. However, DeFi Development Corp. have indicated plans to resubmit the application once they have met the internal requirements.

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• GameStop has moved down over 5% overnight as they announced a $1.75B private convertible senior note offering, continuing its debt financing strategy. This follows its recent $1.5B raise used to buy 4,710 Bitcoin on May 28.

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• Bank of America’s CEO Brian Moynihan revealed that they are actively exploring a dollar-pegged stablecoin but are waiting for key crypto legislation to be in place.
• He noted regulatory uncertainty had previously prevented action, despite the bank's strong understanding and ongoing industry engagement.

This Week’s Calendar:

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Charts of the Day:

Figure 1. BTC at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

Figure 2. ETH at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

Figure 3. BTC 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes

Figure 4. ETH 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes