Daily Brief: In Today’s Little Victory, Inflation Comes Down Slightly

Daily Brief: In Today’s Little Victory, Inflation Comes Down Slightly

over 1 year ago3 mins

Mentioned in story

US inflation fell by more than economists were expecting in July.

What does this mean?

It’s not often you’ll find investors celebrating US consumer prices that are 8.5% higher than they were the year before. But this was one of those rare occasions: July’s 8.5% was, after all, a marked slowdown from June’s 9.1% – not to mention better than economists had predicted. They were also expecting prices to jump 0.2% from June to July, but they were wrong on that front too: data showed there was no change at all, as a 5% drop-off in energy prices offset higher food and rent costs.

US inflation
Source: The Wall Street Journal

Why should I care?

For markets: Traders take this as a win.

The Federal Reserve has been trying hard to lower inflation, and this data could give the central bank faith that its efforts are starting to have the desired effect. Traders certainly seem to think so: they responded to the data by reducing the odds that the Fed would hike interest rates by 0.75 percentage points next month. That might be why the prices of risky assets like stocks and crypto went up following the update, and why the US dollar and bond yields went down.

US stocks rally

The bigger picture: This probably isn’t a win.

Still, there are a couple of reasons the Fed probably won’t ease up. Firstly, it’s been vocal about the fact that it wants to see months of evidence that prices are coming down. More specifically, it needs “core inflation” – which strips out volatile energy and food prices – to consistently drop off, which definitely isn’t happening yet: core consumer prices rose 0.3% from June to July. Second of all, wages are still climbing at a historically fast pace. That might’ve got the Fed worried that we’re in a “wage-price spiral”, where a rising cost of living pushes up demand for higher salaries, leading to more disposable income and, ultimately, higher inflation.

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Coinbase Could Really Do With Crypto Picking Back Up

Coinbase image

Coinbase reported worse-than-expected earnings late on Tuesday.

What does this mean?

Last quarter was another tough one for crypto, with prices down across the board and investor activity dropping precipitously. That caused the value of trades on Coinbase’s platform to more than halve from the same time last year, and brought the company’s overall revenue down by a worse-than-expected 61%. So it follows that the company reported a record $1.1 billion loss for the quarter, which was a far cry from the $1.6 billion profit of the same time last year. Investors initially sent its stock down 7%, which – on top of an 11% drop the day before – means its stock has now lost almost two-thirds of its value this year.

Coinbase stock
Source: Google Finance

Why should I care?

Zooming in: Bitcoin bros turn scaredy cats.

Bitcoin represented 31% of the value of all trades on Coinbase’s platform last quarter – up 6 percentage points from the quarter before, and the highest it’s been since early 2021. That suggests investors have been seeking out the relatively secure embrace of the OG crypto. They seem to have abandoned their “to the moooon” approach too: Coinbase said its customers are increasingly lending out their coins to earn interest, or “staking” them in hopes of being rewarded with more in return.

Crypto losses

The bigger picture: Coinbase hits upon a money-spinner. Sort of.

BlackRock – the world’s biggest asset manager – announced last week that it’ll be partnering with Coinbase to offer bitcoin trading to its institutional clients, which could significantly boost trading volume on Coinbase’s platform. But don’t be fooled: Coinbase charges the heavy-hitters much lower fees than proles like us, so it won’t necessarily lead to a proportionate increase in revenue.

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