This week ended with a proper gut-check. Thursday’s sell-off was the defining move, led by Microsoft’s sharp drop as investors focused on the near-term cost of AI infrastructure spending rather than long-term promise. The Fed’s pause was fully expected, so this was not about rates. What mattered was differentiation: Microsoft was punished, while Meta and Apple held up better on stronger earnings visibility. All of this played out against continued dollar weakness that policymakers showed little interest in countering. Let us dive in.
Macro: Weak-Dollar, Fed Pause, and a Tech Reality Check
On Wednesday (Jan 28), the Fed held rates steady at 3.50–3.75%, reinforcing the view that monetary policy is firmly on hold. On the FX side, Trump’s remarks brushing off concern about the dollar came with the DXY hovering near multi-year lows, strengthening the perception that USD weakness is tolerated. At the same time, USD/JPY volatility picked up after rare rate checks by the New York Fed, with the yen briefly strengthening as intervention risk re-entered the conversation. The signal was subtle but consistent, keeping pressure on the dollar and supporting real assets at the margin.
Then came Thursday.
Microsoft fell double digits intraday, its worst session in years, and the issue was not earnings quality, it was scale. Microsoft confirmed a record rise in capital spending, about USD 37.5 billion last quarter, much of it tied to cloud and AI infrastructure. This is front-loaded spending with uncertain near-term payoff, and the market reacted accordingly.
What mattered was selectivity. The market did not turn against AI, it started repricing it. While Microsoft sold off sharply on concerns about outsized spending and slower Azure growth, Meta held up and rallied, supported by a strong earnings beat, healthy advertising growth, and guidance that gave investors confidence its AI investment could be funded from cash flow rather than destroying margins. Apple also held up, buoyed by record revenue, including a 23% surge in iPhone sales and a rebound in China. The message was clear: not all AI or tech spending is treated equally, return visibility and near-term fundamentals now matter first.
On another note, prediction markets saw a sharp repricing around Trump’s next Fed Chair pick, with Kevin Warsh odds jumping to over 90% in a matter of hours, a move that came before headlines. Whether confirmed or not, that kind of price action usually suggests information, not speculation.
Crypto: Risk-Off Meant Risk-Off
Crypto did not escape the broader risk-off move yesterday. Bitcoin sold off sharply, briefly trading down toward the low-USD 81,000 area and marking fresh year-to-date lows, while ETH and the broader complex followed equities lower. There was no crypto-specific trigger. This was classic high-beta behavior.
From a derivatives and flows perspective, the move was abrupt rather than disorderly. Short-dated implied volatility jumped sharply, with BTC 7-DTE ATM IV pushing into the high-40s and ETH spiking above 60, while 25-delta skew moved deeply negative, especially in ETH, signaling strong demand for near-term downside protection. Flows reinforced the defensive tone: Bitcoin spot ETFs saw roughly USD 800 million of net outflows on Jan 29, while Ethereum ETFs lost around USD 150 million the same day. Funding stayed relatively contained, suggesting this was less about forced deleveraging and more about active hedging and risk reduction, with dip-buying notably absent.
Bitcoin is heading for its longest monthly losing streak since 2018, down roughly 6% in January, as risk-off sentiment and competition from traditional havens have taken their toll. That’s the reality. But at least yesterday’s drawdown is being driven by macro repricing and positioning, not structural stress. If risk stabilizes and liquidity fears ease, crypto does not need good news to recover.
Looking Ahead: Fed Today, Payrolls Next
Looking ahead, the focus is on today’s US PPI. Markets are also watching for a potential Fed Chair announcement from Trump today, with speculation already bleeding into FX and rates. Next week brings a heavy US data slate with ISM Manufacturing, JOLTS, ISM Services, and Friday’s NFP and Unemployment Rate, setting the tone for whether this week’s repricing stabilizes or extends.
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