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.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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