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Quick weekly update here for subs on CPI and a mid week market update.
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But today is a big day for investors as the US Bureau of Labor Statistics releases a CPI number and we see which ways the markets may rip or dip in the near future.
Things are looking up in flavor town as we come in at 8.5% below the expected 8.6/8.7% level. Your shitcoin and dogecoin portfolios may yet have some hope to pump soon!!!! The chaos and disorder is over!
In reality this could be a short lived pump if inflation persists or remains lingering into the Fall and Winter.
But for today the Risk on rally is going to fully commence now.
CPI Print
Stocks, crypto, and other markets have popped immediately with news that the CPI comes in at YoY: 8.5 % when Est. 8.7%
For weeks we have been cruising along with a gentle bear market rally that could be perceived by some as the classic point on the Wall Street Psychology chart where people think the market will keep tanking but it in fact reverses aggressively upward (forget the name).
Tech names and crypto won back some of the losses they took in June and some experts have been saying that this is the bottom for various markets - we may see a continuation of this trend through Wednesday and into the weekend barring anymore black swan events from around the world
In case you missed this we covered the Trump FBI raid yesterday and expect this to dominate news headlines for the next few weeks. That and the Inflation Reduction Act which has a section adding over 87,000 new IRS agents and roughly $1M in funding per agent if you divide it out. Not good.
You can see the results of our poll below:
Remember June CPI Was 9.1% and so far it looks like most analysts expected this number to come in around 8.6% or 8.7% so while 8.5% isn’t too much lower, it is a good sign that investors may start to feel some initial sense that the Fed has inflation moving in the right direction.
Meanwhile, falling prices at the pump left the consumer price index unchanged between June and July. The average price of gasoline reached $4.01 a gallon on Wednesday, according to AAA, down sharply from the record high of $5.01 a gallon on June 14 (NPR).
Wall Street, funds and experts seem to be torn on where this print will send us and with about 30 minutes to open we will all be able to see how the market digests this news.
Here at Arb Letter we think the short to medium term risk on rally continues with folks that are willing to stomach more volatility adding to risk on positions to take advantage of this momentum.
Your tech stocks and other high popularity consumer/growth names will likely be up by end of close today.
If you’ve been stuck in some positions that you want to get out of, have the discipline to cut some if not all of that allocation on days like this. If you’re going to sell, sell into strength.
If you’re like me - HODLing quality assets for years - then this is a great day to see some paper gains come back, but don’t get caught up in FOMO and jump into a rising market. You can afford to be more patient.
Bitcoin (+3%) and other cryptos loved the inflation news, making moves north immediately and pushing many crypto gurus on Twitter to take the position that we are headed higher in the next 24 hours. I agree and think Bitcoin is going to make a stab at taking $30K again.
The BlackRock news we received last week is a canary in the coal mine in terms of how institutions are getting their feet wet in this space. It is extremely bullish long term, though the market may not be immediately reacting to it.
They aren’t pouring all of this money, diligence, and quality reviews into crypto markets for no reason - they know it’s a goldmine and they also know now is the best time to get set up with infrastructure - when nobody wants in.
What’s good to see with Bitcoin is the size and volume of the bids when the news was announced earlier this morning. Indicates some larger players have been waiting for the Green Light to buy based off the CPI.
Could be BlackRock, could be State Street, maybe even Hunter Biden. Someone is throwing in some size for a bet on bullish BTC in the coming weeks and months.
As I type this crypto markets look pretty healthy with various alt coins and blue chips performing well including:
ETH up (9.77%)
SOL up (5.53%)
MATIC up (6.66%)
LINK up (9.3%)
UNI soaring (13.40%)
*As of 11:06 am ET
Good to see an immediate reaction across the board to multiple asset classes with the CPI print. Next sign we will be looking towards is the rest of earnings to get a sense of how other types of companies are faring in this economic environment.
You can count on markets to be pretty volatile moving forward as I’m sure at least 40% of market participants are still expecting a recession and more Fed action in the coming months.
There is a smattering of earnings coming out this week with some of the tech/consumer names reporting next week or later in August. Some of the key names to watch today in the market are below.
The S&P 500's surge this morning and into mid day Wednesday is up to levels not seen since early May. This puts us down 12% since the beginning of the year. Do you think the rally continues?
Sentiment
"In terms of reactions, the market will initially get more excited by a downside core CPI surprise than an upside surprise, especially as it relates to risk appetite, a downside surprise plays to 'hopes' that an oil/food commodities peak, plus slower demand, will filter quickly into US inflation data." (CNBC)
Alan Ruskin of Deutsche Bank
"The most fascinating thing is the 2-10s steepener," Novogratz said. "The curve has flattened to negative-50 basis points between 2s and 10s. You go back [50] years, only one time in the 70s did it get through that. At one point, that's going to flinch, and I think that will be the big inflection point." (via Squawkbox)
Mike Novogratz, Galaxy Digital
Earnings Today
BMBL (Bumble)
DIS (Walt Disney)
WEN (Wendy’s)
BROS (Dutch Bros Coffee)
CPNG ( Coupang)
Conclusion
At the end of the day this slow down in inflation is going to be well received. Some are likely speculating at this point what the Fed will do next - even light rumors of decreased rate hikes could sustain a much broader and aggressive rally that you wouldn’t want to miss.
Either way - this is why it’s best to average into long term positions over time. I’m not worried about catching the complete bottom because there have been some solid spots to add on super red days over the last several months.
The worst might be over for the time being, but one things for sure…. we have many larger domestic, political, and social issues brewing as a result of this economy and I am skeptical the Fed is done with their regularly scheduled fuckery.
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