US stocks initially rose after an economic report showed inflation is cooling and after Walmart’s earnings provided optimism this was still going to be a decent holiday season. It was a busy morning with economic data and earnings, but the overall take is that a soft landing still seems possible.
Stocks tumbled after reports that Russian missiles crossed over into Poland. This is a significant escalation as Poland is a NATO state. In March, President Biden said the US would keep its NATO commitment, including Article 5, which states each member of the alliance will take actions deemed necessary against the attacker.
The producer price index delivered another sign that inflation is cooling. PPI rose 0.2% in October, lower than the consensus estimate of 0.4%, while on an annual basis prices slowed from 8.4% to 8.0%. The prior monthly reading was also revised from 0.4% to 0.2%, which is back around the average monthly gain levels seen before the pandemic. Core inflation posted its lowest reading since July and final demand for services had its first decline since November 2020.
The New York Manufacturing survey rebounded for the first time in four months, while both prices paid and received increased. The Empire State factory gauge rose to 4.5, much better than the expected decline of 6. This report was somewhat inflationary and should raise some caution that inflation is not going to quickly drop from here on out.
The next domino to fall appears to be BlockFi. Contagion from FTX was widely expected to impact BlockFi despite their recent denial that a majority of their assets are custodied at collapsed crypto exchange FTX. Cryptos did not sell off on the BlockFi news as much of the cryptoverse knew ties between FTX and BlockFi were strong.
Bitcoin is showing resilience here but it is hard to imagine investors are ready to test the waters until we learn more about the full contagion risk associated with FTX. If more exchanges or crypto companies pause withdrawals or limit activity, that will likely bring back the pressure on crypto.
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