The Consumer Price Index (CPI) just surprised… absolutely nobody. The figures are high, higher than last month’s, and exaaactly as high as many predicted. So far, the market seems to be taking it in its stride – get ready for a relief rally!
- Consumer Price Index (CPI) data has come in above the November high.
- Worst-case-scenario was priced in.
- Relief rally incoming for equities and crypto alike!
Crypto teaches you many things: Risk management, technical and fundamental analysis, and how to operate under extreme emotional stress. And also the following: When everyone expects something, it almost always goes the other way. But not today. The US Consumer Price Index (CPI) numbers just landed in Washington DC and – would you believe it – they’ve come in bang on the money and in line with expectations!
Ouch. That’s 0.2% up from last month’s CPI, which itself was a forty-year high. But here’s the positive spin: 7% is only the highest it’s been in four weeks! In short, it’s bad, but not remotely dramatic, and far from the worst-case-scenario others were predicting.
The market hasn’t even blinked.
Equities continue to climb:
Bitcoin is showing incredible strength, briefly crossing $44k:
And altcoins continue to rally! The FTM tear continues:
How come? Isn’t 7% a shocker?
Seven percent is a dismal figure but it’s also turning out to be a kind of ‘non-news’ event. And that alone is excellent news! A quick glance at the equities or crypto charts would give you zero indication that the US just registered its worst inflation in decades. What does this tell us? Namely, that figure as high as 7% was already priced-in, and confirmation has given markets permission to continue their steady grind upwards.
Are we out of the woods yet? Hell no. Interest rate hikes and tapering remain inevitable. The good news is that our thesis is unchanged: The Fed has a job to do (reign in inflation), and that’s we expect them to deliver on it. How aggressive rate hikes will be, how many we’ll see this year (three, four?), and how quickly the Fed will seek to renormalize the balance sheet remains unclear. Three are expected, which would be in-line with today’s data. But again, the market isn’t panicking, even though all options are on the table. Remember the cardinal rule: Never bet against the Fed!
So far, the signs are encouraging. The markets are relieved to discover they weren’t undershooting the target. So are we. And this bad but bad-as-expected data could mean the bottom is well and truly in. Up only? Could be.
Seven percent is a shocking figure by any standard! We’ve always said the inflation situation was priced-in. The fact the market hasn’t stuttered (but is rather showing signs of strength) only proves it. If you haven’t checked out yesterday’s article Was that the bottom?, we recommend you give it a read. The Fed’s response to ongoing inflation is a huge determining factor for crypto right now. Today’s news is meh. Our thesis remains in play: the markets will likely enjoy a relief rally as the news-not-news sets in and cool off (without crashing!) when rates are hiked, all in preparation for take-off later this year.