2.5% US inflation a stake in the heart for equities?

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Although most US equities were in positive pre-open territory, many US stocks have taken a belting today after inflation data released this morning confirmed expectations for a 2.5% print for October.

This is no doubt a ball and chain for the market, however it’s also about the late cycle bull market, the trade war and I think most of all, continued expectations of a December rate hike, plus a few more next year.

Even Apple is back to July/August levels, well below its once $1 trillion market cap (c.$892 billion a few moments ago) although part of this is due to expectations of flagging demand for iPhones in 2019.

But what’s really interesting tonight is the extent to which Bitcoin has lost its US$6,000 support level - it’s literally fallen off the cliff.

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It opened at $6,339.17 and quickly dropped to $5,718.50 and it’s still around 10% down as I write.

Along with Bitcoin, risky equities like biotech and high PE tech stocks, plus a number of the larger players are down. The market is becoming more discerning as this late cycle bull market and the Trump tax cuts continue to age.

That said, for the first time in a long while, many of the large US quoted Chinese tech stocks are up, including Tencent, Alibaba, Baidu, JD, etc., and most likely due to positive press on US-Sino trade talks.

Despite all of the above, the underlying threat of higher interest rates next year is without doubt creating the most pain.

As Jerome Powell continues to hammer in that stake, the equities market (down another 0.5%) is desperately holding on in an attempt to stop it from reaching its heart.

Mike.


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