Wednesday, Feb 15, 2023

A new inflation narrative, BTC is a hedge’s hedge, surprising reactions, an excellent meme, why layer-1 innovation matters, correlation tea leaves and more…

“The hardest thing to learn in life is which bridge to cross and which to burn.” – Bertrand Russell ||

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MARKETS

Sticky doesn’t matter?

After the release of yesterday’s CPI data, which came in pretty much in line with expectations, the markets gyrated in confusion before settling on the consensus that the figures were not too bad (I wasn’t the only one fearing a negative surprise).

Some reactions were not surprising: yields shot up as the data breakdown showed continued increases in services pricing given the resilient consumer demand – this will be hard to bring down.

(chart via Bloomberg)

CME futures-priced odds are now favouring another 25bp hike in June, whereas a week ago we were looking at a probable pause.

(chart via CME FedWatch)

Some reactions were more surprising: stocks and bitcoin wobbled and then rose. In spite of growing evidence that inflation will be much harder to bring down further than most have been anticipating, it seems that risk assets are adjusting to a new paradigm.