Ignore Memes and Crypto – This is What to Look Out for This Week

It’s hard to ignore the AMC-Bitcoin floorshow. Each time the crowd appears to begin to lose interest, a new and exciting development gives the markets a spectacular new lease of life. Elon Musk’s heartbreak emoji Tweet on Friday took 3.4% off the value of BTC. At the same time, meme stock prices whipsawed as AMC announced that it would be releasing 11.5 million new shares into the market. The decision to take advantage of investor demand to clear down debts makes sense but at the same time illustrates how easy it is to derail Reddit-based buying activity.

Some will continue to profit from trading the hotter markets. The group of the ‘the next meme stocks’ will also attract investors looking to anticipate the mood in the market. However, back in more traditional investment circles, there is enough excitement for traders. Thursday will see one of the biggest data releases of the year as the US announces its Consumer Price Index (CPI) numbers for May. The Wild West feel to current markets should be overshadowing price data reports, especially as CPI numbers have almost been dismissed for several years. However, this time it really is different, and possibly not in a good way.

Inflation Concerns Rise

Inflation is seen as the major risk to the equity bull market. April’s CPI data suggested that the US economy is overheating and soothing words from the US Federal Reserve that the price creep is transitory might not be enough to reassure the markets. Price inflation has historically been inversely correlated to equity prices, and there are a lot of big investors sitting on gains who will have an eye on scaling back on positions and locking in some profits.

US Core Inflation Rate

Source: Trading Economics

Thursday’s announcement also comes during a lull in ‘other news’. Earnings season is done and dusted and the US Fed doesn’t give its next update on monetary policy until 15th June. That’s just under two weeks for inflationary fears to potentially creep into equity prices. Adding to the feeling that the CPI number is being dropped into something of a vacuum is the fact that there aren’t any further updates on US jobs data until the first week of July.

May’s US CPI Report – the Numbers to Watch Out For

• Year-on-year inflation is forecast to be 4.7%, which is a gain from the 4.2% year-on-year number for April.
• Analysts predict that core inflation will be up 0.4% for the month and 3.4% year-on-year.

Any significant beat of these numbers would represent a serious headache for the US Fed. Friday’s Nonfarm payroll numbers showed job creation not being as strong as forecast, but inflation near 5% could see the Fed accept that it needs to reverse its policy.

S&P 500 Nearing Record Highs

Source: eToro

Friday’s close of US markets saw major indices close near all-time highs. Record highs, meme stock frenzies, and a crypto rebound all point to a bubble forming. The question is whether the CPI data will be the pin to prick it.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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