Digital Assets Morning Call: April 12, 2022

Written by Robert Lynch
on April 12, 2022

Near-expected US inflation data allows relief gains in crypto prices

CPI rises again, but not worse than expected

Crypto assets stabilize from Monday’s extended slide

Macro backdrop continues to pose challenges

After extending their recent declines on Monday, major crypto assets have seen at least a temporary reprieve. The much-anticipated US inflation readings showed a further rise in prices, but was not any worse than expected, which may allow for some pullback in US yields and the dollar, and in turn provide some relief to risk assets more broadly, including crypto assets.

US inflation records another multi-decade high

US March CPI rose 1.2% month-on-month and 8.5% year-on-year, near expected and following readings of 0.8% and 7.9% respectively in February. The upside is that it was not any worse than expected and indeed, after the latest rout in bond prices, risk assets and crypto prices, this outcome looks to provide some material relief to those markets.

The Fed has a serious inflation problem to address

A more sobering assessment is that inflation is still at a 41-year high, a problem that the Fed is expected to address with a more aggressive pace of interest rate hikes and balance sheet reduction in the coming months. Those actions will start to reverse the massive liquidity injection of the past two years that has supported financial assets broadly, including crypto prices, and will therefore create a more challenging environment for them.

Inflation adjusted wages highlight downside risks to growth

The data also revealed that real earnings in the US (i.e., adjusted for inflation) remain deeply negative. Hourly earnings fell at 2.7% year-on-year and weekly earnings fell 3.6% year-on-year. This is a potentially important condition. If it persists, it means that consumers earnings will not keep pace with inflation, which could lower consumption/spending. And given that consumption still accounts for about two-thirds of GDP, this suggests downside risk to overall growth going forward.

On the charts

The relief rally in bond prices and risk assets following the CPI data is carrying over into crypto prices. Bitcoin fell below the $40,000 threshold Monday but has managed to move marginally above it early Tuesday. Previous support at the $42,00 area now looks to represent short-term resistance and is a reasonable target given the improved market sentiment. Similarly, Ethereum has also recovered from Monday’s drop below $3,000 and it looks to have scope for gains to previous support in the $3,150-$3,200 area. Despite this latest improvement in sentiment, we are cautious about expecting the current bounce in crypto prices to extend far in terms of price or duration. The macro backdrop remains challenging on a number of fronts, including Fed tightening, war in Ukraine and lockdowns in China, the combination of which imply slower global growth going forward.

Original source: www.einpresswire.com/sources/u466736

Disclaimer:

Digital Asset Morning Call is for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by ALT 5 Sigma (“ALT 5”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. ALT 5 Sigma. makes no representation or warranty to any investor regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. ALT 5 Sigma does not solicit or provide any financial advice. This is at the sole discretion of the individual.

Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.