Peak inflation is likely here, stocks rebound, bitcoin fights to hold USD 40k

US stocks rallied after a cooler-than-expected consumer price report signaled that the inflation peak could be in place.  The rebound in equities did not last long as oil prices rebound back above the USD 100 level. Stocks will remain a choppy trade as investors await to see what happens with commodity prices as the war in Ukraine shows no signs of easing.  President Putin’s comments that peace talks have hit a ‘dead end’ suggest an end to fighting does not seem like it will happen anytime soon.

Inflation spirals to 8.5%

US inflation rose to a four-decade high as food, energy, and shelter costs surged in March.  Headline CPI in March surged by 8.5% from a year ago, a tick higher than the consensus estimate and six-tenths above the prior reading. The core price index (which strips out food and energy) on a monthly basis decelerated with a 0.3% gain, less than the prior 0.5% reading. Used car/truck prices fell 3.8% for the month, which is the second consecutive monthly decline and a welcome sign that the supply side shocks could finally be fully priced.  Inflation is moderating as yields come in following the not-so terrible inflation report.  It is hard to be overly optimistic about the US consumer given the significant declines with real average weekly earnings, widespread gains across food, energy, and shelter, and as geopolitical uncertainty could keep commodity prices elevated.

Inflation will take care of itself if geopolitical risks improve and expectations should remain that the Fed won’t have to aggressively tighten policy and send the US economy into a recession.

Bitcoin

Bitcoin is attempting to hold onto the USD 40,000 level as crypto investors grow nervous a continuation of the bond market selloff could send risky assets much lower and trigger another rout for cryptos.  A large amount of institutional money that became crypto investors got their start in 2021 and they bought bitcoin between the USD 30,000 and USD 40,000 range, which could suggest they may want to buy this dip if they still believe in the long-term outlook.

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