Fed vindicated a little as this round of inflation looks transitory, stocks pop on soft CPI data and drop on margin concerns, bitcoin rebounds

US equities rise as inflation dips

It looks like the Fed may have got inflation right.  An inflation slowdown could be what is needed to justify their taper delay and suggests they have a couple more months to see how the labor market recovery unfolds.  Softer inflation numbers sent US stocks initially higher as expectations for a Fed taper announcement drift to December.

The Russell 2000 index initially outperformed as softer inflation data helps small-cap stocks the most, but that rally did not last.  The rotation back to the reopening trade was faded, as economists saw trouble for US companies’ margins, mainly because the rise in producer prices was not passed onto the consumer.  The Russell 2000 index and Dow Jones Industrial Average quickly turned negative, while the S&P 500 index was slightly lower and the Nasdaq was grasping at a small gain.

The focus will shift to Apple’s big reveal for the iPhone 13, a new Apple Watch and AirPods.  The annual event will likely excite the consumer and lead to a very strong holiday season for Apple.  Apple shares are heading into this event well off its record highs, which could allow for strong upside if they impress today.

The next big round of economic releases happens tonight in Asia, which could show the Chinese economy continues to slow.  If growth slows too quickly, traders should not be surprised to see more easing from Beijing.

Inflation

The relentless surge across some prices have started to decline.  Used car and truck prices declined 1.5%, a positive sign that the global chip shortage might be easing a little bit.  This inflation round easily went to team transitory as indexes for airline fares, used cars and trucks, and motor vehicle insurance all declined over the month.  Inflation that is hitting the economy is mostly food and energy prices.

The other economic data release of the day was the NFIB small business optimism index.  Small business owners are losing confidence in the strength of future business conditions, which could support the Fed’s patience in tapering.  Fifty percent of owners said openings could not be filled, up a point from July and a 48-year record high.  The problem with the labor market is there is an insufficient amount of qualified candidates for the record amount of job openings.  The headline NFIB small business optimism index rose 0.4 points to 100.1.

Bitcoin

Bitcoin prices rebounded after a better-than-feared CPI report sent Treasury yields plunging.  The Fed is in no rush to taper and that overflowing bowl of stimulus is good news for cryptocurrencies.  Relentless government spending and chaos in fiat currencies is good news for bitcoin and that narrative is not going away anytime soon.  Today, the Mexican central bank said the government bought international reserves worth USD 7 billion in the past week.  Mexico has a debt problem and that story is shared with most of Latin America.

Bitcoin appears to be stabilizing and could continue to consolidate around the USD 45,000 to USD 50,000 level.

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