Crypto drives down inflation | Without a bank

Cooling inflation. Crypto assets surged this morning following major inflation signals from April. What does the data say and why have markets interpreted it as a sign to buy?

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

Inflation remains persistent and still exceeds the Federal Reserve’s long-term 2% target, but this is the first time the CPI has fallen in the last three months; Meanwhile, retail sales are showing increasing signs of stagnation.

Despite monthly fluctuations in inflation data, accompanied by much noise, it is clear that deflation continues to set in as rising prices weigh on the demand side of the economy.

After the data was released, markets began to price in the increased likelihood of interest rate cuts to combat the declining economic situation, sending U.S. Treasury yields back to their March highs and indicating that Traders are actually preparing for these inevitable rate cuts. .

Disinflation may be present, but it has not yet reached a worrying level, allowing market participants to assume that future rate cuts are unequivocally bullish, as their decline reduces the risk-free rate and theoretically strengthens the relative attractiveness of risky assets.

With further confirmation that the future development of interest rates is downward, market participants criticized the supply of crypto assets, causing the price of BTC to rise by 7% that day; BTC managed to break the downtrend that had been weighing on prices since April and break through the $65,000 level that had served as weekly resistance!

Source: Trading View

Unlike range-bound crypto assets, traditional stocks have been climbing steadily over the past two and a half weeks, allowing today’s CPI to provide the fuel needed for stock indexes to reach new all-time highs!

The broader S&P 500 and the tech-heavy Nasdaq 100 both surpassed their previous ATHs set in March as U.S. cash markets opened and continued trading throughout the morning alongside other risky assets.

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

Even though the prevailing wisdom adopted by many market participants leads them to believe that falling 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 powerful enough to spur faltering growth. given that the lowest interest rate levels have coincided with the recessionary peaks of past cycles.

In the absence of clear growth catalysts, monetary and fiscal policymakers could once again resort to currency depreciation, and while the actual economic impact of such actions is uncertain, they would be almost guaranteed to increase the dollar prices of durable assets protected from shocks. inflationary fiat systems, like Bitcoin and gold.

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