Earnings, inflation, Bitcoin and geopolitics more fun at the fairground

I guess it’s safe to say the much anticipated Consumer Price Report released on Thursday was a tad disappointing as it seemed to suggest inflation has stopped falling. The headline rate was expected to jump, blamed on base effects, which it did; as a result, the year-on-year rate of inflation is now higher than it was six months ago in America when it hit a low of 3%. There was an initial increase in treasury prices, but by the end of the day, the two-year US treasury yield, the one most sensitive to changes in interest rate sentiment, fell back. Not much actually changed on the day after this report. The S&P 500  hit a record high, then suffered a little altitude sickness; stocks dipped and then recovered, and the dollar basket was largely unchanged. The market still wants to believe the Fed will cut in March. I guess if one wants to take the positives, the core rate, which excludes food and energy, continues to drift lower.

So that’s out of the way; now the focus will turn to Jamie Dimon and JP Morgan’s earnings and whether Mr Dimon will once again be the man who foretells the end of the world is nigh. Well, not quite that bad, but one can hardly call him the voice of optimism in the past few years. At last year’s Q3 earnings report in October, he described the current environment as  the “most dangerous time the world has seen in decades.” He went on to say the “largest peacetime fiscal deficits ever” are raising the risks that inflation and interest rates remain high. Americans face the possibility of stagflation,an environment in which stagnant economic growth is accompanied by interminably high inflation and a steep rise in unemployment. All good cheery stuff; his timing was perfect as the stock and bond market went on a 3-month run. We shall see what he has to say later today about the current world events, particularly after yesterday’s news that The US has carried out military strikes against Iran-backed Houthi rebels in response to the Yemen-based militants’ attacks on commercial ships in the Red Sea.

Geopolitical tensions often seemed to go largely ignored by stock markets, rather taking the attitude of what will be will be. This weekend, Taiwan kick the ball off as much of the world goes to the polls at some point this year. The outcome of who takes the reigns may have implications for relations between China and Taiwan and could increase tensions that, once again, China will look to have greater influence on the country.

I guess we can not help but comment on the fact that Bitcoin has been given something of a seal of approval as the SEC finally capitulated, pushed kicking and screaming to permit the use of ETFs for Bitcoin. It is an asset that is almost impossible to value, driven entirely by sentiment and demand, and is not catching on as a method of payment, loved by some and treated with indifference by the rest of the world.