Bitcoin gains, stocks flatline as bearish market calls grow louder

Good morning.

U.S. futures are edging higher this morning, but the mood across the markets is hardly a bullish one. Yesterday’s not-too-hot-not-too-cold inflation reading failed to impress investors. Every sector on the S&P 500 closed in the red on Tuesday despite Treasury yields falling. On cue, we’re getting more predictions the markets are headed for a pullback.

In today’s essay I take a pass on the economists’ hot takes on the Consumer Price Index, and instead seek out the wisdom of 12-year-olds on the inflationary impact for the global economy. You may not get any usable markets intel out of it, but everyone gets a dish of gelato at the end.

Before that, let’s see what else is moving the markets today.

Markets update

Asia

• Asia is mostly lower with the Hang Seng down 1.8% in afternoon trading.
• Weighing on Chinese stocks is a batch of disappointing economic data showing growth is slowing in the world’s No. 2 economy.
• It’s a bad day for Macau casino stocks. Investors shaved a combined $14 billion in market value off the likes of Sands China and Wynn Macau after the government said it would tighten restrictions on operators in the gaming enclave.

Europe

• The European bourses were going nowhere at the open, with the Stoxx Europe 600 down 0.1% in the first half-hour. At the start, tech, energy and financial services were among the few sectors in the green.
• European natural gas prices are soaring, up more than 500% in the past year, and that spike is hitting homeowners. In an effort to make the energy crisis not spin into a political one, Italian PM Mario Draghi has vowed to tap €1.2 billion in public funds to ease consumer energy bills.
• Spanish clothing giant Inditexposted a big bottom-line beat, reaching pre-pandemic profit levels. Rival H&M, however, saw shares fall 3% after reporting a top-line miss, hurt by Delta.

U.S.

• U.S. futures point to a modestly higher open. I said something similar at this time yesterday, and then… all three major averages fell despite investors getting a Goldilocks reading on inflation before the bell.
• Yields on the 10-year Treasury note fell by the most in more than a month following yesterday’s unsurprising CPI reading. And still, tech stocks—heck, everything—fell. If you’re paying someone to manage your portfolio, this would be a good morning to give her a call.
• Unlucky 13? Apple shares fell 1% on Tuesday after the company unveiled the iPhone 13 and Apple Watch 7. The newly demoed products were, as my colleague Jonathan Vanian notes, more “incremental” than innovative, which may explain investors’ disappointment.

Elsewhere

• Gold is down, but the shiny yellow metal did manage to top $1,800/ounce yesterday after the CPI data came out.
• The dollar is fading.
• Crude is up with Brent trading below $74/barrel, a seven-week high.
• The crypto is bouncing this morning, with Bitcoin trading above $47,000.

***

Inflation hits home

Yesterday, moments after the CPI data came in, all manner of talking heads went on Bloomberg and CNBC to discuss inflation. And, unsurprisingly, Team Transitory—those on Wall Street who say this high inflation is merely a passing trend—took their victory lap.

Just then, the doorbell rang. It was my daugthers. They had a half-day, and so they joined some classmates for lunch at the local tavola calda in the piazza next to school. Six seventh-graders.

This was the bill: €95 ($112).

I know. One lunchtime receipt does not prove or disprove inflation.

But there is a kind of psychology that comes with steadily rising prices. It tends to distort our sense of true value, price transparency and trust in market pricing. To a table of 12-year-old girls, chatting about whatever 12-year-old girls chat about, inflation is abstract to the point of non-existence, as is the concept of true value, price transparency and trust in market pricing.

After puzzling over the receipt, I looked up the rate of inflation in Italy. At 2.1%, it’s one of the most meager in Europe. If Italy’s inflation rate is to be believed, then prices are rising twice as quickly in the United States, and three times as quickly in Russia, and nearly 10 times as quickly in Turkey. I wonder what Turkish dads are saying about their kids’ lunchtime spending habits.

Okay, let’s make some lemonade here, I figured.

I thought the girls’ lunchtime extravagance would serve as a nice teaching occasion about the value of a euro. And so I decided to bring the matter up at dinner, with my wife present.

I knew it was too early to introduce them to the dynamic of input costs (how energy and electricity prices are soaring, how shipping rates are through the roof, how disruptions in the global supply chain are messing with the cost of raw materials and the availability of finished products, and how that all that can push up inflation). Ditto, I skipped the treatise on the positive side of inflation (at healthy levels, it usually signals a period of economic growth). And, I knew enough to keep the discussion free of any talk of stocks (there are winners and losers when prices rise) and interest rates (that rising prices often, according to my old university text books, influences central bank policy).

The whole discussion bogged down immediately, however. They revealed that one kid showed up to the planned lunch with a fiver in her pocket, and another kid with not much more than that, and that a third kid decided to splurge on the spaghetti alle vongole, which got the table to change their minds and go for the pricier specials menu.

At the end of the meal, my daughters threw in a €50 note, which not only covered the table’s lunch, but was enough to get some of the gang gelato (receipt not pictured).

When I heard this, I went into a dead-end critique of journalist pay while my wife jumped in to right the ship. She just wanted to know if they had comported themselves well at the table, and whether everyone enjoyed themselves.

Si, they sang out in unison.

At the conclusion of last night’s little lesson, they had just one question for me: Could you take us for gelato?

If only every inflation debate ended with gelato.

***

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's read

Hedge funder, Mets owner Steven Cohen invests in crypto-trading firm—Fortune

With crypto concerns on the rise, SEC’s Gensler calls for help from Congress—Fortune

Lawmakers move to close $16.8 billion crypto tax loophole—Fortune

Stock Buybacks Beat Capital Spending for Many Big Companies—Wall Street Journal

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