Higher than expected US inflation data triggered further selling in risky assets, with stocks and cryptocurrencies looking vulnerable to further sharp falls in value.
- Eagerly awaited US CPI (inflation) data released yesterday showed a fall in the headline rate from 8.5% to 8.3%, but the fall was smaller than had been expected, while core CPI data showed another increase, which was also an overshoot. The data gives a little credibility to the “inflation has peaked” position, but has worried markets and will also worry the Federal Reserve, who will see the data as indicating a persistence in inflation. Although the data ultimately brought only a small increase in the 2-Year US Treasury Yield so far, it likely helped trigger further strong selling in risky assets such as stocks and cryptocurrencies, both of which asset classes look very vulnerable today.
- Stock markets are broadly lower, some significantly so. The S&P 500 index closed well below its psychologically important 4,000 level yesterday at a new 1-year low, and the price is not far from completing a 20% decline from its peak a few months ago, which would put the US stock market into a bear market by any measure. The NASDAQ 100 index is also firmly lower at a 1-year low. These are strong bearish trends and are likely to continue over the coming days.
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- Cryptocurrencies are in serious trouble, with Bitcoin breaking below a very key support level at $28,800, which threatens to trigger a further fall all the way down to $10k or even lower. Almost all coins are making significant double-digit losses on a more or less daily basis, while a key stablecoin, UST (Luna/Terra), has effectively collapsed, threatening the entire crypto ecosystem. Some analysts see this as a buying opportunity, but it will likely be foolish to not wait for evidence of a bottom first.
- In the Forex market, there is clearly a flow into the Japanese Yen as a safe haven, while the British Pound and New Zealand and Australian Dollars are the weakest major currencies. There is a small retracement against these trends underway, but the broader trend is likely to resume. The US Dollar remains relatively strong.
- Today will bring releases of US PPI data, which may give further insight into US inflation, and Preliminary UK GDP data.
- Daily new coronavirus cases globally fell last week for the seventh consecutive week.
- It is estimated that 65.5% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 6.6% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.
- Total confirmed new coronavirus cases worldwide stand at over 519.1 million with an average case fatality rate of 1.21%.
- The rate of new coronavirus infections appears to now be significantly increasing only in Costa Rica, Dominica, South Africa, and Taiwan.
- The Chinese state is maintaining its “zero covid” strategy, after a study by Shanghai university suggests that relaxing lockdown restrictions would likely lead to 1.6 million deaths in China and an overwhelming of intensive care units, as vaccine-induced resistance to the virus is likely to have remained low.
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