| Recession fears rise, commodities are retreating and Bitcoin slumps. Recession fears continue to ratchet higher even as Fed Governor Jay Powell hopes the US can avoid one. Powell, speaking at the ECB's annual policy forum in Sintra, Portugal, said: "We hope that growth will remain positive," even as the Fed hikes rates to curb the highest inflation in 40 years. Inflation is continuing to reverberate through the market, with high-end furniture retailer RH slumping in extended trading after slashing its forecast for the second time in less than a month, blaming soaring mortgage rates and shrinking sales of luxury homes. Meanwhile, China's economy showed further signs of improvement in June. After driving inflation at the start of the post-pandemic period, it seems raw materials are now on the retreat. Base metals headed for the worst quarterly slump since the 2008 global financial crisis as China's economy recovered only gradually and fears of a world recession intensified. And oil is heading for the first monthly decline since November as OPEC+ ministers prepare to discuss its supply policy, with the group expected to rubber-stamp an increase in supply for August. Whether that's enough to take the sting out of inflation -- which has now spread to wage costs and the services sector -- remains doubtful.  | Bitcoin is on track for its worst quarter in more than a decade, as more hawkish central banks and a string of high-profile crypto blowups hammer sentiment. The 58% drawdown in the biggest cryptocurrency is the largest since the third quarter of 2011, when Bitcoin was still in its infancy, data compiled by Bloomberg show. The current bear market stands out for the amount of crypto leverage that's been unwound. But JPMorgan Chase & Co. said the current phase of deleveraging is at an advanced stage and may not last much longer. Crypto lender Genesis Trading is looking at a potential loss running into the "hundreds of millions" of dollars, CoinDesk reported, citing people it didn't identify. European stocks slumped at the open with major indexes dropping as much as 2.5% as of 5:30 a.m. New York time. All Stoxx 600 sectors posted losses with autos the standout underperformer. DAX and CAC are the marginal underperformers. S&P futures dropped 1.5%, Nasdaq futures were down 1.9%. Bonds resumed their rally: short dated bonds outperformed, steepening yield curves. Japan's yen and New Zealand's dollar were the strongest out of G-10 currencies. Crude futures drifted sideways, spot gold slipped $4 to trade near $1,814/oz. Bitcoin crumbled, declining over 6% to trade below $19,000. Today's economic data includes May's personal income and spending, released alongside weekly jobless claims and PCE deflator at 8:30 a.m. The June Chicago PMI is due at 9:45 a.m and the EIA's natural gas storage data is due at 10:30 a.m. OPEC+ officials will meet via video conference. Constellation Brands Inc. and Walgreens Boots Alliance Inc. are among companies scheduled to report earnings. Here's what caught our eye over the past 24 hours. Inflation in the US is at the highest level in decades. Not only that, it caught the Fed by surprise, and there's clearly a high level of regret about ever having used the word "transitory" to describe it. You might think in this environment that the Fed is wounded somehow and has somehow lost its credibility with the market. In fact, it almost seems like the opposite... that the Fed has a shocking amount of credibility. As my colleague Mike Regan noted yesterday, five-year breakevens are pricing the lowest level of inflation this year. In fact, you can see that both five-year breakevens and five-year forward breakevens (essentially the market's pricing of inflation in the five years beyond the next five years) have both come in sharply. Both are well within a range that looks pretty normal, relative to the last decade. By no means does this demonstrate that inflation *will* come down. Markets are highly fallible, and get things "wrong" all the time. So the point of this isn't to show that it's mission accomplished by any stretch on inflation. But clearly, the folks with money on the line believe one of two things:
A) Inflation is ultimately transitory, and will come down due to various pandemic-related factors dissipating.
or B) The Fed will do what it takes to crush inflation, even if that means inducing a recession. Given the high level of inflation right now, and the Fed's failure to anticipate it, you have to be impressed by just how much credibility the central bank still retains; that inflation getting out of hand (or even significantly above target) over the medium term is not something the market is pricing in. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart | 
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