Inflation Below Consensus | Effect on Risk Assets

Hey everyone and thanks for jumping back Into the macroverse Today we're going to talk about the most Recent CPI report and the effect on the Stock market if you guys like the Content make sure you subscribe to the Channel give the video a thumbs up and Also check out into the cryptoberries Premium at into the cryptiverse.com one Of the things we talked about yesterday Was sort of discussing likely outcomes Based on where CPI comes in and of Course we never know exactly where a CPI Is going to come in but we can sort of Guess as to what the market would do Based on if it comes in under Expectations or over expectations and You can see that core inflation came in At six percent whereas consensus was 6.1 And headline inflation came in at 7.1 Percent whereas consensus was 7.3 and What we said yesterday was that if it Comes in below expectations the likely Outcome for for risk assets and general Stocks and and crypto Would be to see a short-term move to the Upside okay so if we go take a look at The S P 500 you can see right now it's Sitting at 39.90 one of the things that I want to Draw your attention to is the hold above The bull market support band last week Okay so we held the bull Mark sport band At around 39.30 this was something I I

Talked a little bit about on on in on The the premium side but we held at 39.30 And this week we're still holding just Above that level However we also have this macro Downtrend line that we've been facing up Against for a number of times not right I mean this is we've been rejected by it Four times now now let's go back in time And look at the.com crash because we Have followed this uh to a large extent And and actually during the.com crash we Had several different tests of that Trend line where we came somewhat close To it and just systematically got Rejected Time After Time After Time but One particular interesting area to look At is what happened in December okay you Had a rejection off the the trend line And then we held support on the bull Market support band That rally lasted until basically the End of December the first week of January That's where that rally ended up lasting Okay so you had A rejection off the trend line holding The 20-week a pop above the trend line We actually then came back down in February and then we came back up for a Double top in March and and then sort of Back down in May and then this as the Old saying goes right sell in May and go

Away of course back then this also would Have been an accurate assessment even Though we had already come back down Because after may you can see that the Market from that level actually dropped Um You know another another 30 percent or So especially if you take it from where It got rejected right here off the bull Market about another 30 drop or so and So our general expectations yesterday of If it comes in below expectations then What will likely happen is we'll see Risk assets rally in the short term Right we'll see them rally in the short Term furthermore we would expect the Interest rate hike tomorrow by the Federal Reserve I'm expecting expecting It to just be 50 basis points right I Said yesterday if if CPI comes in below Expectations pal has already said that There there's a good chance that they'll Lower it down to 50 basis points by December And I think that's what they're going to Do I think tomorrow we'll see a 50 basis Point rate hike it'll bring the FED Funds rate up to four and a half percent And then I I think there's a chance here That the markets will will celebrate for A little while okay just like they did During the.com crash they'll celebrate For a little while The main problem that still is is out

There right and I I know some people are Are tired of hearing the bearish side or The bearish bias but I think the main Issue that still exists is we still are Unaware of how the interest rate hikes That the Federal Reserve did last year This this past year how they're going to Affect the economy in 2023 And this is sort of the thing that that Continues to Um you know really really stand over us And and make us Wonder Will we head into a recession In 2023 right and if we go take a look If we go take a look really quick and Take a look at We have the yield curve so we talked About that a little bit yesterday as Well Um but if we go take a look at the Treasury yield spreads again you can see The inversion of the three month and the 10-year yield right and normally there's Only one way out of this mass and that's Via recession okay and we know based on History the stock market typically Bottoms during the recession during The.com crash it actually bottomed after The recession but usually we see a an S P 500 major bottom at some point during The recession And so as we continue to follow the S P 500 assuming we get some type of Pop Here above the trend line that doesn't

Necessarily mean the bear Market is over Although I'm sure a lot of people would Hope that is what it would mean and Again there's always a chance right There's always a chance however we still Have to contend with earnings in 2023 Likely coming in below Expectations and we also have to contend With a potential recession And the recession would likely be Declared once the unemployment rate goes Up and the way the unemployment rate Would go up is all these companies Starting to fill the effects of these Interest rate hikes from 2022 but only Starting to feel them in 2023 so then You could see something like sort of Like a Playbook here would be The FED raises 50 basis points in uh or Tomorrow okay so suppose they raise 50 Basis points tomorrow and then in February it'll be interesting to see What markets are thinking so February The market is saying right now the most Likely outcome is is just 25 basis Points which is is a possibility right To get us to 4.75 percent in March To get that to that five percent level And then there's a chance they get to That five percent level and just hold Okay that's actually what markets are Thinking right now they get to five Percent and hold because that's the Highest probability out of all these

Outcomes so looks like markets are Thinking right now the FED will get to Five percent by March and then hold it There and wait and then we wait to see If inflation actually comes down in a More sustained way the issue remaining Is what happens if it you know if the Federal Reserve loosens policy too much And then it starts to go back up Or simply perhaps inflation does come Back down but one of the ways that it Comes back down is via recession right We know that recessions have a way of of Bringing it back down in fact if you go Take a look at um if we go take a look Here at headline headline inflation year Over year what you'll notice is that one Of the ways to bring it back down Is via recessions Okay and so that is the way you know I Think there's two ways right I mean you Get out of this High inflation via the Recession route or you also could Theoretically get out of it via the um If if interest rates are just held at a High enough level and somehow the US Economy is able to to absorb it it's not My base case by any stretch of the Imagination but I suppose that would be Sort of the um the soft Landing route But anyways right now the s p is is Sitting just below the trend line I believe Futures you know Futures are Are showing that they're up today so

Depending on where we actually open a Good chance that the s p is going to pop Above this trend line again it depends On on where we actually are at the open If we do pop above it That doesn't mean the bear Market's over Just like it didn't mean it was over Back in in the.com Crash And we still again and and and if you Look if you look at this We still have the the you know sort of This recession looming in the background That people have been talking about Forever right but the unemployment rate Still hasn't gone up yet so if it hasn't Gone up recession is just simply not Going to be declared so that's what We're looking at right now General Expectations of course are are that this Initial pop by risk assets I I think has Was the most likely scenario if Inflation came in in below expectations But I still think you have to be on the Lookout here of this of this um rally Fading at some point within the next Two to three weeks and and then and then We sort of wake up into 2023 and then Figure out what's what and who's who as We as we sort of figure out whether Whether we're going into a recession or Not again thank you guys for tuning in Make sure you subscribe if you're not Subscribed give the video a thumbs up And I'll see you guys next time bye

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