Macro Economy Weekly | Bitmidas
2022–08–06
High Inflation Worldwide
US inflation continues to climb, hitting a seasonally adjusted 9.1% by the end of June.
The skyrocketed inflation and rising price of goods and services have a negative effect on people’s daily life and hamper economic growth. Thus the Fed keeps adding interest rates to fight inflation. The Federal Open Market Committee (FOMC) has raised the federal funds rate to 2.5%.
Raising the interest rate will drain liquidity from the market. Now there’s only 100bp left to the target of 3.5% previously set by the Fed. Despite the shrinking liquidity, several financial markets, such as the US stock market and BTC, took this margin as a positive sign of ending interest rate hikes and began to rally.
However, the US is not the only one suffering from high inflation. Many countries already surpassed 9.1%. For instance, Turkey has lost control over its insanely high inflation now at 78.6%.
Containing global inflation needs coordination of supply and demand between countries. It could take several years.
The predicament of inflation is oil. Re-balancing the oil supply and demand is the only way to temper inflation.
Major Markets Performance
Oil
OPEC is cautiously increasing oil production. OPEC+ recently agrees to add 100,000 barrels a day of supply in September, only a ‘minuscule’ output to fill the shortage since at least 1 million daily productions could be able to substantially fill the shortage.
At least this is good news to ease market sentiment. The prevailing high oil price also suppressed the demand for oil, resulting in a drop in its price.
Oil prices kept sliding from the top since June 2022. Due to the time lag of CPI stats, the current oil price has not been captured in the previous data. The figure released on August 10 is expected to drop.
US Stock Indexes
Benefiting from the optimistic expectation of inflation, many listed companies start to buy back shares, causing a relief rally in the stock market.
A bounce in the stock market has a ripple effect on other markets, such as BTC, as they are sensitive to the Fed’s interest rate hike but are different in strength.
BTC
Although BTC has seen a correlation with the US stock market several times in recent years, the present move of BTC is far from simply synchronizing stocks because the latter is stimulated by a large volume of repurchases while BTC is not. Now BTC is gradually detached from the stocks and is running independently in the downward channel.
Nevertheless, BTC has seen a notable increase in institutional investment. Here is a list of ETFs, and Bitcoin AUM of listed companies.
TSX ETFs, Closed-End Funds, and Corporate Listings that deal in bitcoin and cryptocurrencies：
US Bonds
US bonds and treasury are facing long-term downward pressure as many holders are worried about US economic recession and Geo-political risks and began to dump these assets.
Among the sellers, most are from Asian countries, showing a pessimistic view of the US economy.
Summary
Corona epidemic, Geo-political events, and regional wars broke the balance of supply and demand and pushed up inflation. Containing inflation and re-balancing the supply and demand need time. The most effective method is to make ways for food supply, lower trade barriers, and add more oil production, along with financial tools of lifting interest rate and QT. In the current period, most financial markets won’t easily form a bullish trend. Before a turning point of macro figures and fiscal policies, the market will generally stay inert, sometimes with long waves, high volatility, and small-range consolidation.
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