According to Steno Research's AndreasSteno, inflation slowdown often portends a decline in corporate profitability, a scenario risk assets are yet to price in. reports godbole17
While bitcoin and stocks are cheering Tuesday's softer-than-expected U.S. consumer price index print, one expert suggests slowing inflation is not a reason to buy risk assets.
The data, which strengthen expectations for a slowdown in the Federal Reserve's interest-rate increase path and a pivot to liquidity easing in second-half 2023, lifted risk assets. Bitcoin jumped over 3% to $18,000 following the CPI release, the highest since Nov. 10, CoinDesk data show. The S&P 500 gained 0.7%, while the dollar index dropped to a six-month low.
"Those who find a lower inflation print a good opportunity to buy risk assets should look away now," Andreas Steno Larsen, founder and CEO of Steno Research,in the inflation review published Tuesday."Remember that the PPI is a leading indicator for EPS ... And if we allow the oil future to predict PPI, then we are in for negative EPS growth already during Q2/Q3-2023."
The chart shows corporate profitability, as measured by EPS, tends to closely follow PPI, which is likely to turn negative in the second quarter of 2023.
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