Weekly Market Wrap | 17 April 2023

#USInflation #30KBitcoin

Topic #1: US Inflation fell to its lowest level in 2 years

Changes in prices (YoY) (Source: Financial Times, US Bureau of Labor Statistics)

The US Bureau of Labor Statistics has released the consumer price index data for March which increased by 5% year-on-year, a significant deceleration compared to the 6% rate recorded in February. Core CPI, a measure of underlying price pressures that strips out volatile energy and food costs, rose by 5.6% year-on-year, indicating that price pressures for some goods and services are still elevated.

Why did it happen?

Although energy prices decreased in March and there were varying fluctuations in food-related expenses, the core measure of CPI saw an increase due to a surge in housing-related costs. The shelter index saw a 0.6% rise in March, resulting in an annual increase of 8.2%. This suggests that the anticipated decrease in this category, which economists have been expecting for some time, has begun. Historically, the shelter index trails behind alterations in home and rental prices by about a year.

What does it mean for the investors?

The latest inflation data has put the Federal Reserve in a difficult position ahead of its May 2023 meeting. While overall inflation has fallen more than expected, there is concern over the rise in core inflation. The market still expects a 0.25% hike in interest rates with a probability of over 60%. Additionally, it is important to note that the OPEC+ supply cuts, which increased oil prices  occurred in early April, meaning that this price hike will not be reflected in the latest data. Although there are positive takeaways from the March CPI data, there is still a lingering sense of uncertainty. The Q1 2023 company results and the upcoming FOMC meetings will provide further insight into whether the Fed can achieve a soft landing.

Topic #2: Bitcoin surpasses $30,000 level

On Tuesday, the value of Bitcoin, the largest cryptocurrency in the world based on market capitalization, surged beyond $30,000. This is the highest level that Bitcoin has reached in the past ten months. The renewed surge in Bitcoin’s price has created a sense of optimism among investors after a prolonged period of low prices in the cryptocurrency market. According to CoinShares, a digital asset management firm, reports indicate an inflow of investments into cryptocurrency products, particularly Bitcoin, which has brought digital asset flows back into positive territory for the year.

The surge in Bitcoin’s price is considered a sign of increasing adoption by mainstream corporations and institutional investors. Its upward trajectory can be attributed to a combination of factors, such as positive regulatory developments, rising demand for digital assets, and a shift in investor attitudes. Some investors view Bitcoin as a potential safe haven asset, particularly during periods of economic and political uncertainty. It has also gained popularity as a store of value similar to gold, as it is a finite asset with a limited supply.

While the outlook for Bitcoin and other digital assets remains uncertain, Bitcoin’s resurgence above $30,000 is a welcome development for investors and market participants, as it underscores the resilience and potential of the cryptocurrency.