Inflation remains hot, stocks rebound as peak inflation appears to be in place, bitcoin breached USD 30k

At first, it looked like inflation broke the S&P 500’s back as investors sold everything following across the board hot beats with every inflation headline, as the initial take was that the Fed will need to do more to fight inflation. ​ Today’s market reaction to the inflation report will make it hard to attract any investor who is still on the sidelines. ​ The risks on Wall Street are growing and now include a Fed policy mistake, liquidity and credit risks, and growth concerns. The Fed is still behind the curve with fighting inflation and is now at risk of losing the soft landing it was trying to navigate.

Stocks turned positive as investors picked apart the inflation report and decided it won’t change Fed policy in the short-term. ​ The 1.1% increase with new vehicle prices was mainly attributed to the change in the BLS’s methodology and the peak seems to firmly be in place, while the increase in shelter and food prices still remains troubling. ​ ​ ​

CPI higher than expected

The April inflation report came in hotter-than-expected and triggered a complete reset in Fed rate hike expectations. Today’s headlines were supposed to be that inflation peaked in March, not plateaued. ​ The month-over-month core reading surging from 0.3% to 0.6%, which should make some Fed members feel uneasy about only raising rates by half a point at the next meeting. ​ Wall Street thought it was going to be done with inflation rearing its ugly head but that does not appear to be the case.

Headline inflation dipped for the first time in eight months with a print of 8.3%, down from an 8.5% annual rate in March.

Inflation is still expected to decelerate over the next few months, but it won’t be sharp given the rising prices on gas, hotel, airfares, and possibly a wide range of goods that will be impacted by China’s COVID lockdowns.

Bitcoin

Bitcoin saw the USD 30,000 rug pulled after a hot inflation report sent the Nasdaq and all risky assets tumbling. ​ It is a very nervous time in crypto markets following the collapse of the controversial stablecoin UST and as the majority of institutional crypto investors that invested last year are now losing money.

Bitcoin showed resilience alongside other risky assets as the overall takeaway from the inflation report was still that the peak is in place and that much of the inflation is demand-driven. Bitcoin is back above the USD 31,000 level and will likely continue to take a cue from the Nasdaq. ​ ​

Bitcoin remains very vulnerable to further selling pressure and could see further technical selling if the USD 28,500 level breaks. ​

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