Has inflation been defeated? Trump's Davos declaration and the bizarre clash with market reality

Trump announced at Davos that US inflation has been defeated. This statement should have boosted the market. However, in reality, cryptocurrencies and stock index futures are declining, while gold and silver are hitting record highs. The gap between words and market performance reflects that the current economic situation is far more complex than it appears.

The Contradiction Between Words and Reality

Trump told attendees at Davos that US inflation has been defeated. However, the actual market performance at the same time tells a different story.

According to the latest news, Trump threatened to impose tariffs on eight European countries over Greenland issues this weekend, which directly triggered a “flash crash” in the cryptocurrency market. Bitcoin briefly fell below $93,000, with a liquidation scale of $864 million within 24 hours. Meanwhile, European and US stock index futures declined by about 1%, with market risk appetite significantly decreasing.

What is more noteworthy is the divergence in asset performance. Gold prices rose over 1.5%, approaching $4,700 per ounce, and silver prices increased by 206% year-over-year, both hitting record highs. This pattern typically appears during periods of heightened economic uncertainty.

What Risks Are the Market Pricing?

Geopolitical Uncertainty

Trump’s tariff threats are not unfounded. The EU has stated it will not be extorted by tariffs and has threatened retaliatory measures against US assets. This confrontational stance increases market uncertainty.

Some analysts point out that geopolitical tensions weaken Bitcoin’s “global” appeal, while gold and silver, as “stateless” assets, are gaining favor. This reflects the market’s true assessment of risks.

Reemergence of Stagflation Concerns

More critically, expectations for inflation data are rising. Economists at Barclays and Morgan Stanley predict that the US Personal Consumption Expenditures Price Index (PCE) to be released this Thursday could be raised to 2.8%-2.9%, higher than previous forecasts.

This upward revision directly points to a market’s most feared scenario: stagflation—weak economic growth coupled with soaring prices. In such an environment, risk assets (like cryptocurrencies and tech stocks) usually perform poorly, while safe-haven assets (gold, silver) are in demand.

The True Reflection of Market Sentiment

It is worth noting that spot Bitcoin and Ethereum ETFs saw inflows of over $1.9 billion last week, the strongest since October last year. This indicates that institutional investors’ long-term optimism about cryptocurrencies remains unchanged, and recent declines are more short-term emotional fluctuations.

Key Moments This Week

Inflation data will be released this Thursday. The market’s reaction to this data could directly determine its short-term direction.

If PCE indeed rises to 2.8%-2.9%, concerns about stagflation will intensify, safe-haven assets may continue to rise, and risk assets could face pressure. Conversely, if the data falls below expectations, a rebound may occur.

An interesting phenomenon is that the market’s reaction to Trump’s tariff strategies has formed a certain pattern: weekend tough talk causes market sentiment to collapse first, then government officials come out to soothe, and ultimately, agreements are usually reached. But this time, the combination of tariff threats and inflation data worries could make the situation more complicated.

Summary

Trump’s declaration that inflation has been defeated sharply contrasts with the current market performance. The market is not encouraged by these words; instead, it is pricing in multiple risks: geopolitical tensions, potential upward revisions of inflation data, and reemerging stagflation concerns. Gold and silver hitting record highs while Bitcoin plunges fundamentally reflect the market’s true risk assessment.

This Thursday’s PCE data will be a key turning point. Regardless of the outcome, the market’s response will more honestly reveal the true state of the current economic situation.