US stocks rallied on optimism that it doesn’t seem like Russia will invade Ukraine this week and despite another hot PPI report, as many on Wall Street were still not convinced the Fed will be as aggressive as some were calling for this year.

The bond market selloff resumed as risk appetite returned following an easing of geopolitical tensions with both the Ukraine situation and Iran nuclear talks. The 10-year Treasury yield was back above the 2.00% level and expectations were growing that it will stabilize above there now.

Inflation is accelerating and hopes that we were seeing the price pressures peak may get pushed back a couple more months.

PPI surges to 9.7%

Factory-gate inflation remained very hot, prompting expectations for inflation to run hotter a little longer, and supporting the case for the Fed to kickoff their rate hiking cycle with a half-point rate increase.

To the surprise of no one, food and energy costs were behind the hotter-than-expected headline wholesale price increase of 1% in January. The 12-month period posted a 9.7% gain, which was near record levels. Core inflation was nearing the peak, but it seemed like the consumer was still nowhere near in seeing any relief with prices.

Americans expect inflation to eventually ease next year, but they are growing nervous the peak could be far worse than they initially expected. President Biden is expected to acknowledge the recent surge with food and gasoline prices, which means executive orders may be coming.

Bitcoin

Bitcoin got its ‘groove back’ as risk appetite returned to Wall Street after Russia-Ukraine tensions eased. The Ukraine situation had a day of calm, but the situation remained very tense. Bitcoin still seemed poised to consolidate between the USD 40,000 and USD 50,000 level as the bond market selloff resumed.

Bitcoin has survived the winter plunge and could continue to rise higher if Fed rate hike expectations moderate. Aggressive tightening fears have been the driver behind the surge with global bond yields and if that move has run its course, Bitcoin could continue to rise.

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