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📈 Underwhelming Inflation Data Pushes the Markets Marginally Higher

📈 Underwhelming Inflation Data Pushes the Markets Marginally Higher

Howling Markets
March 01, 2024

🐺 Hi pack-mates,

This is Howling Markets, the colorful and informative newsletter that skips underwhelming information to help you start the day off on the right foot!

Today we will be covering:

Education: Why Is Inflation Stuck at 3%? 💱
Bitcoin Skyrockets and Could Beat its All-Time High, Analyst Say 🥇
Underwhelming Inflation Data Pushes the Markets Marginally Higher 📈
Equity and Debt Markets Daily Update ⚖️
And more!

Market Watch 👀

Prices as at 7:00 am ET

Education: Why Is Inflation Stuck at 3%?

Inflation has been a great part of our lives since the beginning of the pandemic. Prices started surging due to the supply shocks caused by the lockdowns during the final months of 2020 and kept climbing until they reached a 9% peak in summer 2022.

Since then, inflation fell considerably until it reached the 3% level, measured by the Consumer Price Index (CPI), during the first half of 2023. However, over the past 8 months inflation has remained relatively constant at this 3% level without being able to reach the Fed inflation target, despite the high interest rates.

The main reason behind the difficulty of breaching this level is core inflation, a measure of inflation that does not take into account food and energy prices. Since the beginning of 2022, core inflation has fluctuated between 6% and 4%, a much narrower range than headline inflation, causing the CPI to remain elevated.

Some analysts have also pointed out that even though many goods are cooling down, the inflation in the services sector is still strongly increasing, keeping the overall headline inflation elevated.

If you had to make a prediction, in which month do you believe CPI headline inflation will hit the Feds’ 2% target?

Bitcoin Skyrockets and Could Beat its All-Time High, Analyst Say

This week, Bitcoin’s performance has been absolutely stellar, with the price surging from around $50,000 to well above 60,000 before slightly retracing during Thursday’s trading session.

According to most crypto analysts, the causes behind this outperformance of Bitcoin are mainly two: the increase in popularity of Bitcoin spot ETFs and the halving.

Initially, the spot ETFs had caused a significant period of consolidation right after their launch, but in the following weeks their performance couldn’t go unnoticed, and Bitcoin’s price started to increase once again.

On the 28^th of February the New Nine, the nickname attributed to the new 9 Bitcoin Spot ETFs, reached an all-time high trading volume of over $7.7 billion, more than doubling their previous record set at the beginning of this week. Additionally, just to put things into perspective, BlackRock’s spot ETF (Ticker: IBIT) alone has achieved a greater daily trading volume than Nasdaq’s ETF (Ticker: QQQ).

The other relevant factor that has been pushing Bitcoin’s price higher is the halving as historically the token has entered a bull run after these rare occasions took place due to the restricted increase in supply.

On the other hand, some analysts have started warning that Bitcoin has reached extremely high funding rates and that it is about to encounter a very strong level of resistance that might cause the price to fall down, at least in the short term.

As a matter of fact, after peaking above $64,000 during Wednesday’s session, the price started sliding down and continued to do so throughout Thursday, closing the day down -2.16%.

Do you believe the Bitcoin has peaked, or that this rally still has room to run in the upcoming week?

Today’s Howling Question

And now, it is time for our howling question!

We have mentioned that Bitcoin has rallied quite a lot this week, but do you precisely know by how much?

How much did Bitcoin gain between Monday and Wednesday, before slightly falling on Thursday?

+7%
+11%
+16%
+21%
+27%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Underwhelming Inflation Data Pushes the Markets Marginally Higher

The inflation reading announced on Thursday came in a little hotter than expected, inducing a mild performance in the stock market. Given the recent plateau at the 3% level and the sustained interest rates, analysts were expecting to see CPI inflation breach this level and reach the 2.8%-2.9% levels.

However, the inflation reading came in at 3.1%, missing analysts’ forecasts for the second time in a row after last month’s reading came in at 3.4%.

Quincy Cosby, chief global strategies at LPL financial, commented on the data by saying that the last mile is proving stickier and more stubborn and that this is the confirmation that the Feds will need more data before even thinking about cutting rates.

However, we all know by this point that the Feds prefer to use the PCE instead of the CPI as a measure of inflation, and by doing so, we obtain some slightly better news. The PCE fell from 2.6% to 2.4%, remaining in line with the expectation of the market.

Because of this the stock market did not have any strong reaction to the news and it mainly continued to trade following its trend and it wasn’t even affected by a significant increase in volume during the session.

Equity and Debt Markets Update

And now, our daily markets update!

Despite the initial mild performance and a relatively low volume given the importance of the news, the stock market was still able to make the best out of the situation. At the beginning of the trading session the price started to slide down due to the unexpected underwhelming data, but then during the session it changed its mind and it climbed higher during the final portion of the day.

The price closed +0.53% higher on Thursday, recording another all-time high just below the 5,100 level.

On the other hand, the debt markets faced a much higher volatility throughout the trading session with the benchmark 10 year US government bond yield first moving +1.24% higher and then falling much lower than the opening price. However, before the end of the session the US10Y recovered and closed just -0.33%.