What does today's U.S. inflation data mean for markets?

GB Market Commentary 10/06/2022

by Marcus Sotiriou

Bitcoin continues to hover around $30,000 as the market is anticipating the U.S. CPI inflation data being released at 1.30pm. This event is key as it will give us a better understanding of whether inflation has peaked or is beginning to peak, which is what is needed for the Federal Reserve to loosen monetary policy and hence result in upside for markets. If CPI is 8.3% year-over-year as expected, which is the same as the previous month, this would signal that the Federal Reserve still have a lot of work to do. I think this would mean that, in the case of a short squeeze, upside would be capped for markets over the next few weeks.

Economist Mohamed El-Erian, who accurately forecasted almost a year ago that elevated inflation in the U.S. would be persistent, says it hasn’t peaked. He said, “what worries me is that the June month-on-month print will be worse than the May month-on-month print. Those who boldly said inflation has peaked and is coming down may have to change their minds.”

Cathie Wood, CEO of Ark Invest has an opposing view, as she believes that high inventory will lead to prices dropping over the coming months, therefore leading to a rally in tech and crypto by next month. Investment bank Piper Sandler agrees with Cathie as they released a report suggesting that restocking excess inventory alone will help core inflation drop to 2% from the recent reading of 6.2%.

I think it will take longer than a month for us to see a change in direction from the Fed and a possible U-turn, but I agree that inflation will come down within the next 3-6 months in part due to the excess inventory.

After the UAE made progressive movements recently towards crypto adoption, Japan is next. On Tuesday, the Japanese government gave the green light to a new policy that plans to increase Web 3 promotion in the country, including the use of cryptocurrencies, NFTs and decentralized autonomous organizations (DAOs).

In addition, Japan’s Parliament has passed a new law that would create a regulatory framework for stablecoins, essentially defining them as digital money. Japan's crypto watchdog is also in talks to abolish strict rules for listing tokens. This news comes after FTX announced last week they have launched in Japan.

The country has been early adopters of crypto, as they recognised cryptocurrency as a form of money in 2016, but it is clear that they are upping their game in trying to be the epicentre of cryptocurrency.