Cautious optimism

Stock markets are pushing cautiously higher again on Wednesday as investors await a huge inflation report from the US ahead of the open on Wall Street.

The report is expected to be the first that will indicate inflation has peaked and a sharp decline is underway. That doesn’t mean inflation is expected to return to target any time soon but it will come as a massive relief to investors, households and businesses alike after months of watching price pressures accelerate higher.

The fear is that the data today doesn’t tell us what we want to hear. A slower deceleration or worse, none at all, would be an enormous blow and I expect equity markets would feel the full effects of it. The extent to which that would be the case would obviously depend on how bad the data is.

On the flip side, considering the shock to equity markets recently, a low reading that marks the end of the ascent and falls in line with the view that price pressures will ease considerably in the months ahead could be very positive for stock markets.

Investors will be hoping the inflation data can provide a tailwind for equity markets for the rest of the year and perhaps even allow for interest rate expectations to be pared back. There may be some scarring from the last six months which may stop investors from getting too excited initially but indices are at a steep discount now after recent moves and a low inflation reading could tempt some back in.

Lagarde drops subtle rate hike hint

After months of pushback, it seems the ECB is forming a consensus around raising interest rates in the coming months. Noises from policymakers in recent weeks have alluded to that and Christine Lagarde today ever so slightly deviated from her policy of ambiguity to hint at the possibility of a July hike.

That would align with where markets stand on the lift-off and make the ECB the latest central bank to abandon its transitory argument and belatedly start tightening. Whether Europe will pay the price for their hesitation, as may be the case in the UK, US, New Zealand and many other countries, isn’t clear. It may well depend on how swiftly it agrees to raise rates and how entrenched inflation becomes. There’s no doubt they don’t quite have the problem the UK and US have, for example.

Bitcoin stays above crucial support as Terra plunges

Bitcoin survived a brief dip below USD 30,000 on Tuesday and is making small gains so far today, easing pressure on the critical support in the process. It could have been much worse for bitcoin if it got caught up in the Terra debacle, which is down more than 50% on the day despite being a stablecoin by definition. That it hasn’t sent shockwaves throughout the broader crypto space will come as a relief to bitcoin HODLers for now. But that could change and a break below USD 30,000 could make them very uncomfortable.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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