Inflation is feeling hot hot, stocks pare drop and bitcoin rally

A hot inflation report sent US stocks tentatively back towards session lows as pricing pressures appear to be getting worse. The dollar and Treasury yields rallied as the argument that the Fed might be making a policy mistake grows. Inflation hit a 30-year high in November as real wages struggle to keep pace.

It may take a few more hotter-than-expected inflation reports before we see the Fed deliver a major reversal with their inflation is mostly transitory stance.

The White House quickly responded to this hot inflation report, directing the National Economic Council to find ways they can alleviate these pricing pressures.  This inflation report has many economists bracing for another hot report next month as price increases with rents and autos show no signs of easing.

US stocks pared earlier inflation-driven losses as robust demand for electric vehicles helped deliver a significant rebound with Tesla shares and massively strong demand for the Rivian Automotive IPO.

Jobless Claims

The labor market recovery is gaining steam, but for the US to reach maximum employment the participation rate must increase significantly. Weekly jobless claims made a fresh pandemic low at 267,000, a miss of the 260,000 consensus estimate, but an improvement over the upwardly revised prior reading of 271,000.  Continuing claims still are above the 2-million mark and that data point is not declining fast enough given the strong demand across corporate America.

The labor market recovery still needs over 4 million jobs to get filled before returning to pre-pandemic levels and that seems unlikely to happen before tapering ends in June.

Can bitcoin punch past USD 70 thousand?

Bitcoin continues to show Wall Street that it is a bona fide inflation hedge.  After the hottest inflation reading in 30 years Bitcoin shrugged off a knee-jerk dip and pushed higher into uncharted territory.  This inflation report has many thinking pricing pressures won’t be easing just yet and that should be good for inflation hedges. Bitcoin has a price barrier at the USD 70,000 level and will likely provide key resistance.  The short-term outlook for Bitcoin is mixed but given the majority of the last part of this rally was institutional, end-of-year volatility will remain elevated.  The end of year trading range for Bitcoin might be the USD 65,000 to USD 75,000 area.

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