Stocks drop on surprisingly hot inflation report, King dollar, cryptos decline

Wall Street watched rate hike bets pour in after a US inflation report surprised everyone.  The surge in Treasury yields sent stocks broadly lower, with the dollar dusting off its crown.  The debate for many is over; inflation will not be transitory.  Corporate America will clearly be passing along the recent super commodity cycle driven price increases onto the US consumer and that for many traders is why they feel this is the beginning of persistent inflation.

If pricing pressures remain strong at the end of summer, then the Fed will have to revisit the idea that inflation will be transitory.

The Nasdaq led the decline, also hurt by SPAC mania being on life support as high growth technology stocks continue to lose favor.  The Nasdaq is poised for its first monthly loss this year.

CPI

The hottest jump with consumer prices in over a decade surprised everyone, even the Fed.  Everyone expected high numbers, but this inflation report blew past all the consensus estimates.  Fed Vice Chair Clarida acknowledged the readings were above his expectations but stayed committed to the overall group’s belief that inflation will be transitory.

This is just one inflation report but it spooked investors.  The headline increase of 4.2% from a year earlier was the biggest increase since the summer of 2008.  Consumer prices jumped 0.8% in April from March, quadruple the estimate.  The core readings also posted hefty gains, which will provide a high baseline for what the Fed expects to be temporary inflation pickup.

The increases are across apparel, used cars and trucks, and food, but not energy.  It will take a few more hotter-than-expected reports to really unnerve some Fed members.  If the inflation numbers continue to surge at the end of the summer, that might be what could force Powell to pivot that pricing pressures might not be transitory.

Cryptos

The surge in Treasury yields triggered a modest panic selling wave across the crypto space.  The diversification trade against bitcoin and into altcoins was due for a break and fresh concerns that the peak in the global crypto market cap has been made are the primary catalysts with today’s weakness.

The new flavor of the month, Internet Computer, an overlay network that enables the Internet to host software and services, fell over 20%.  The cryptoverse is evolving but could be in for a rangebound period until the space gets cleaned up and meme-stocks garner less attention than one’s with real world applications.

Bitcoin is down over 5% but still comfortably above the lower boundaries of its recent trading range.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya