π¨ STOCKS, BITCOIN, AND GOLD ARE ALL RALLYING ON THE SAME DATA THAT JUST PUSHED FED RATE HIKE ODDS TO 85%.
Core CPI at 2.4% is the lowest in over 5 years.
This is the number that strips out food and energy, so it reflects the sticky, underlying part of inflation, things like shelter, services, and everyday goods, and it's been falling steadily for years.
Headline CPI stayed at 3.4%, but that's held up almost entirely by oil, which has spiked due to the Iran war.
That's a supply shock tied to a specific geopolitical event, not evidence that broad demand driven inflation is coming back.
Risk assets rallied across the board on this data, stocks, Bitcoin, gold, and silver all moved higher at once.
That's the market betting that cooling core inflation gives the Fed room to hold rates steady or even cut later this year.
But Fed rate hike odds jumped to 85% after this same data. Rate markets are betting on the opposite outcome, that the Fed hikes anyway at its next meeting.
Here's why these two markets disagree.
The monthly core number came in hot, up 0.3% versus 0.2% expected, driven by "supercore" services, a measure that strips out both energy and shelter.
Since supercore has nothing to do with oil, that heat looks like real demand, not just the war. Rate markets are reacting to that one hot monthly number.
Risk assets are reacting to the 5-year trend in the yearly number.
Both can't be right for long.
If oil pressure eases and supercore cools next month, risk assets win this bet.
If supercore keeps running hot, the Fed has cover to hike on September 17 regardless of the yearly trend, and today's rally in stocks and crypto would look premature.
27 reposts 28 replies 178 likes
|
|
