Inflation Concern Eases... Nasdaq and Bitcoin Rise

Decline in Government Bond Yields and Dollar
US Inflation at 7% but Within Expected Range, Stabilizing Investor Sentiment

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Although the US inflation rate reached 7% last year, the New York stock market showed strength. Concerns over the sharp rise in inflation and the resulting abrupt monetary policy shift by the Federal Reserve (Fed) eased as US Treasury yields and the dollar index both declined.

On the 12th (local time), the Dow Jones Industrial Average rose 0.11%, the S&P 500 increased by 0.28%, and the Nasdaq index closed up 0.23%.

The Nasdaq, which had plunged last week reflecting the possibility of interest rate hikes, rose for three consecutive trading days this week.

The market focused on the Consumer Price Index (CPI) for December of last year, released before the opening. The CPI increase rate was 7%, in line with market expectations. The slowdown in the month-over-month increase was also a positive factor.

Although the CPI rose at the largest rate since 1982, the market reacted positively. Concerns that the CPI might exceed the Dow Jones compiled expert forecast of 7% disappeared, leading to a decline in US Treasury yields.

On that day, the 10-year US Treasury yield recorded 1.736%. The situation, where it had surged to 1.8%?the highest in two years?ahead of Fed Chair Jerome Powell’s congressional speech, calmed down. The Chicago Mercantile Exchange FedWatch tool still estimated four rate hikes this year.

Fed Chair Powell’s projection that quantitative tightening would begin only in the second half of this year, contrary to expectations, also helped restore investor sentiment.

Rick Rieder, BlackRock’s Global Chief Investment Officer of Fixed Income, said, "I expect the Fed to raise rates in March but not to overreact."

Anthony Saglimbene, Investment Strategist at Ameriprise Financial, explained the market’s relief by saying, "Investors were prepared for inflation increases higher than expected."

As Treasury yields fell, the dollar also weakened. The dollar index dropped 0.74% to 94.920, retreating to levels last seen in November of last year.

Risk assets such as cryptocurrencies also showed strength. Bitcoin rose 2.78% to trade at $44,010. Ethereum also increased 4.77%, with its price forming at $3,394.

International oil prices hit a new two-month high again. West Texas Intermediate (WTI) crude oil closed at $82.64 per barrel, up $1.42 (1.8%) from the previous session. This is the highest level since November 9 of last year.