Cryptocurrencies raise inflation | Without banks

Cooling of inflation. Crypto assets emerged this morning following major inflation signals in April. What do the data say and why did the markets interpret them as a buy signal?

Although Tuesday’s Producer Price Index (PPI) release showed slightly higher-than-expected inflation in the previous month, CPI statistics released today were in line with analysts’ expectations.

Inflation remains sticky and is still above the Federal Reserve’s long-term target of 2%, but this was the first time the consumer price index fell in three months; meanwhile, retail sales are showing increasing signs of recovery stagnation.

While monthly fluctuations in inflation data present a fair amount of noise, it is clear that deflation continues to spread as higher prices have come to weigh on the demand side of the economy.

After the data release, markets began to price in a greater likelihood of interest rate cuts to combat the worsening economic situation, sending US Treasury yields back to March highs and indicating that traders, in fact, , are preparing for these inevitable rate cuts. .

Disinflation may be present, but it has not yet reached the territory in question, allowing market participants to operate under the assumption that future rate cuts are unambiguously bullish, as their decline decreases the risk-free rate and theoretically strengthens the relative attractiveness of risky assets.

In further confirmation that the future path of interest rates is downward, market participants put a bid on crypto-assets, driving the price of BTC up 7% on the day; BTC managed to break the downtrend that had been weighing on prices since April and broke through the $65,000 level that served as weekly resistance!

Source: TradingView

Unlike range-bound crypto assets, traditional stocks have risen steadily over the past two and a half weeks, allowing the current Consumer Price Index to provide the fuel needed for stock indexes to reach new all-time highs!

Both the broad-market S&P 500 and the tech-heavy Nasdaq 100 surpassed previous highs reached in March as U.S. cash markets opened and continued to rally throughout the morning along with other risky assets.

The US Federal Reserve can exert enormous pressure on the short end of the interest rate curve, but fundamentally these rates are priced in by a combination of future growth and inflation expectations.

While the prevailing view adopted by many market participants leads them to believe that lower interest rates are bullish for risky assets, they are only one factor in the broader economic equation, and it remains highly doubtful that the cuts will be enough powerful enough to stimulate faltering growth. whereas the lowest levels of interest rates have coincided with the conditions of maximum recession in past cycles.

In the absence of clear growth catalysts, monetary and fiscal policymakers could once again resort to currency devaluation, and while the true economic impact of such actions is uncertain, they would be almost guaranteed to raise the dollar prices of isolated hard assets from inflationary fiat schemes, such as Bitcoin and gold.

Fuente