What does last weeks inflation data mean for markets?

GB Market Commentary 16/05/2022

by Marcus Sotiriou

Bitcoin rallied on Sunday to $31,500. Time and time again sharp upward moves on Sundays reverse which is exactly what happened. As soon as US stock market futures opened this morning and started falling, Bitcoin dropped too due to the current risk-on correlation and fell to $29,200.

I am optimistic for the second half of the year, as inflation expectations are anchored (meaning stable). This is shown by the University of Michigan Consumer Sentiment survey, which surveys consumers monthly regarding their sentiment and economic conditions. The results from March show that consumers expect prices to rise by 5.4% over the next year, up from 4.9% last month. Despite this number being a 4-decade high, inflation expectations are clearly stable, which is what the Federal Reserve wants to see to become less aggressive.

Furthermore, the U.S. CPI data from last week signalled that inflation is peaking even though it is not inflecting down as quickly as we would like. Therefore, I think that much of the sell pressure recently is due to fear rather than fundamentals, and that global markets have been pricing in a recession. Futures funding rates for Bitcoin are currently negative on many exchanges, showing that the majority of traders in the futures market are short at a key support level, which could lead to a short squeeze if they are on the wrong side.

Goldman Sachs and Barclays have invested in a crypto platform called Elwood Technologies, owned by British hedge fund billionaire Alan Howard. In addition, Mike Novogratz’s Galaxy Digital and the venture divisions of Commerzbank, the second largest bank in Germany, participated in the round which vales the company at $500 million. This is further confirmation of institutional interest in the crypto space. Rather than invest in crypto assets themselves, the preferred method for major financial institutions to gain exposure is to invest in the infrastructure which supports the industry.