Inflation's back

Macro

This week's story was CPI. April came in at 3.8% YoY headline (vs 3.7% consensus) and 0.4% MoM core, both hot. Between earnings season and the Beijing summit it's easy to forget the Strait, but the Strait is still closed. The war has dragged on long enough that the energy shock is no longer transitory. It's at its core now. Real wages went negative for the first time in three years.

Rates moved hard. 10Y +28bps on the week to 4.58%, the highest since September 2025. Fed funds futures have wiped out every expected cut for 2026 and now price a 44% chance of a hike by December, up from 22.5% a week ago. The conversation went from "when do they cut" to "do they hike" in five trading days. Long duration got crushed: 20Y+ Treasuries -2.8%, gold -3.8% despite the geopolitical backdrop, Brent +8.6%. The only things that worked were the things causing the problem.

The Trump-Xi summit was more vibes vs substance. A "constructive strategic stability" framework, a 200-plane Boeing order that underwhelmed, a Taiwan warning from Xi, and the U.S. confirming it wasn't asking China for help on Iran. Nothing actually moved.

Warsh confirmed 54-45 on Wednesday, the narrowest margin for a Fed Chair in the modern era. He chairs the June 16-17 FOMC with updated SEPs and a fresh dot plot. He leans hawkish historically. Empire State Manufacturing piled on, surging to 19.6 vs 7.0 expected with prices paid accelerating.Equities hit fresh ATHs on Thursday, S&P above 7,500 and Dow reclaiming 50,000, helped by the Cerebras IPO (+68%) and AI momentum. Friday undid most of it as yields caught up. S&P barely held green at +0.2%, Nasdaq red at -0.3%. Quiet week on the surface, wild intraweek.

Digital Assets: Squeeze unwound

Last week we flagged the breakout was leverage and short covering, not spot. This week confirmed it. BTC popped above $82k on the CLARITY Act vote then reversed hard, closing Friday at ~$78k, -5.7% on the week. Weekend slide toward $77k took out $657M in liquidations, $584M from longs.

ETH -10.2%, continuing to underperform across spot and derivatives. ETH/BTC pressing 0.0275, funding softer, relative implied vol elevated. Wrong asset for this macro.

ETF flows flipped. BTC spot ETFs -$1B for the week, snapping six consecutive weeks of inflows. ETH ETFs -$255M. Glassnode flagged institutions "selling into strength" with the 7D-SMA of netflow at -$88M/day, worst since mid-February. When leverage is the marginal buyer, the unwind is fast.

BTC sits below the 200-day MA (~$82.2k), rejected five times this month. $76-78k is support. Break $75k and $70-72k opens up. Elsewhere, XRP and SOL ETF products kept attracting institutional flow even as ETH bled. Tokenized Treasuries hit $15B onchain, which seems to be a continued area of growth.Finally, we had the CLARITY Act clearing the Senate banking commity. While this is positive, it’s still unclear how this will do on the floor vote required before passage into law. It’s possible if the momentum on the act fades that this will be pushed back to the medium term.

Our take:

“Macro just got more complicated"

Last week we said we'd find out fast what kind of rally this was. We found out. BTC failed at the 200-day on the first real macro shock, which tells you it was the squeeze driving it all along.

The macro backdrop has changed underneath the market. Reality that it was brewing underneath for a while as we flagged but with earnings season behind us, the market’s now taking note.

CPI is accelerating, core surprised to the upside, real wages have gone negative, the 10Y is at 4.58%, and we have a hawkish new Fed Chair taking over in three weeks. None of that was the setup that got us through $80k. Rate pricing flipped from cuts to a possible hike in five trading days, and that kind of repricing takes time to work through risk assets.

Cross-asset told the story cleanly this week, with Brent +8.6% at the top and BTC -5.7% and ETH -10.2% at the bottom. The only things that worked were the things causing the inflation problem, and crypto got hit harder than equities on the way down. That relative underperformance matters more than people are giving it credit for.

The structural bid is still there. Exchange reserves remain at multi-year lows, long-term holders are still accumulating, and CLARITY is moving forward. But the flow data shows institutions used the rally to take profit rather than add, and in the short term that matters more than the structural story.

$76-78k is the level to watch. A hold through Nvidia earnings on Wednesday (20/05) rebuilds some confidence, but a break of $75k with funding resetting and ETF flows negative opens up the low $70s pretty quickly. Being outright long here means betting institutions step back in with yields rising and inflation reaccelerating which might be a big ask until the changing macro backdrop is better digested.