On Friday, Asian and European stock markets fell sharply, with China leading the way, as its September Consumer Price Index (CPI) showed no growth. According to market analysts, China’s dismal economic statistics may raise anxiety for the global economy.
This October, consumer sentiment fell 7% as inflation fears gripped the psyche of American consumers. The drop is notable given the previous two months of stability in attitude. To add to the melancholy, personal financial assessments have fallen by a stunning 15%, owing mostly to increased concerns about inflation.
As if that weren’t enough, forecasts for business conditions over the next year have dropped by 19%.
Stock markets succumb to inflation fears
The strong inflation data may compel the Federal Reserve to keep its key interest rate at a higher level for a longer length of time in order to control inflation, which has alarmed investors, as indicated by today’s stock market performance.
On Friday, Asian market indices fell throughout China, Japan, and Hong Kong after China revealed its CPI numbers, which came in lower than expected, indicating a weakening economic outlook for the world’s second-largest economy. In addition, China recorded a 2.5% drop in its Producer Price Index. The benchmark CSI 300 Index in China declined 1.05% to 3,663.41.
The benchmark Hang Seng Index in Hong Kong sank 2.3% on Friday, capping a six-day bull run. Inflation estimates for the coming year have risen from 3.2% to 3.8%, the highest level since May 2023.
This percentage substantially exceeds the 2.3-3.0% range that existed prior to the epidemic. The increased trend indicates that inflation is still a major element, causing consumer and markets confidence to be shaken.
Long-term inflation expectations, on the other hand, have risen somewhat from 2.8% to 3.0%. Although a modest increase, this rate has remained in the 2.9-3.1% range for the most of the previous 27 months, which is still higher than the 2.2-2.6% range seen prior to the epidemic.
Investor sentiment continues to be cautiously optimistic in spite of persistent geopolitical tensions, including the Israel-Hamas conflict, which has the potential to affect the worldwide oil supply. Nevertheless, market analysts opine that the concerns may be exaggerated.
Furthermore, a widely held belief exists that corporations are more likely than not to surpass anticipated earnings, specifically in the technology and industrial industries.
TradFi and DeFi markets performance in comparison
Just like traditional financial markets, crypto markets are in the red as the negative weekend effect kicks in. The Bitcoin price is exhibiting an ascending channel pattern, with a resistance level of $28,000 and an approximate $26,750 rising support.
From October 6 to October 12, the price of Ethereum fell by 7%, reaching a seven-month low of $1,520. Despite a marginal recovery to $1,550 on October 13, various metrics suggest that investor confidence and interest in Ethereum are diminishing.
There is a possibility that this movement is indicative of a more general lack of interest in cryptocurrencies, as Google search volume for “Ethereum” has decreased to its lowest level in three years. Since July, Ethereum’s performance has lagged behind that of the entire altcoin market capitalization by 15%.
The consolidation period observed in Bitcoin follows two contradictory market catalysts: anticipations regarding the possibility of a Bitcoin exchange-traded fund (ETF) being approved in the United States, and concerns regarding the “higher-for-longer” interest rate strategy pursued by the U.S. Federal Reserve.
Analysts assert that the adoption of a Bitcoin ETF would stimulate market demand in the amount of $600 billion, which would be positive for the BTC price. Conversely, more persistent inflation increases the Fed’s likelihood of maintaining elevated interest rates in the future, potentially detrimental to more volatile assets such as Bitcoin.
A notable occurrence that influenced the value of Ether was Cardano founder Charles Hoskinson’s statement in 2018 concerning the classification of Ether by U.S. Securities and Exchange Commission director William Hinman as a non-security asset. Additionally a co-founder of Ethereum, Hoskinson claimed on October 8 that the regulator’s decision was influenced by “favoritism”.
Moreover, investors engaged in the network validation process have become less interested in Ethereum staking, as the yield has declined from 4.3% to 3.6% in less than two months. This alteration transpired concurrently with a rise in the supply of ETH as a result of diminished activity in the burn mechanism, thus reversing the prevailing trend of scarcity.
The risk of “paradoxically high degree of concentration” in decentralized finance (DeFi) was emphasized by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), a division of the French Central Bank, on October 12. This development heightened regulatory concerns. To secure users, the ACPR report recommended the establishment of specific regulations governing smart contract governance and certification.
