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Is peak inflation here? And crypto is volatile, while there’s defaults in China.Peak inflation?As the dust settles after those swifter-than- [View in browser]( [Bloomberg]( Is peak inflation here? And crypto is volatile, while there’s defaults in China. Peak inflation? As the dust settles after those [swifter-than-forecast inflation](prints for April in the US, Treasuries have continued their [rally](. Traders are probably taking heart from the fact that while analysts misread the tea leaves, the 8.3% reading was still milder than what we saw in March -- raising the question of whether the US is past peak inflation. Crypto volatility Crypto's current bout of volatility, which saw [Bitcoin]( drop as much as [10.5% this morning before recovering](, continues amid uncertainty over the fate of stablecoins. Terra, one of the [more exotic offerings](, has dropped 99.95% from the 1:1 peg with the dollar in the last week. The much more widely used Tether stablecoin, which claims to be backed by actual assets including the US dollar has also seen its peg come under pressure. The drop in Bitcoin coming amid a much wider global risk-off move again brings into question the cryptocurrency's function as a [hedge against inflation](. Defaults in China Covid lockdowns and inflation fears continued to weigh on Chinese assets. Sunac China Holdings Ltd. has [defaulted]( on a dollar bond, becoming one of the biggest Chinese property companies to renege on its obligations amid a record-breaking wave of missed payments. The yuan [extended declines]( as the central bank hinted at further easing. [Hong Kong]( intervened to prop up its currency for the first time since 2019. Meanwhile, China’s top political advisory body plans to host a forum next week with some of the nation’s largest [private-sector firms]( including Baidu Inc., an event that will be closely scrutinized over whether Beijing will dial back its clampdown on the technology industry. Risk off It's another tough day for risk assets with the majority of Europe's cash equity indexes dropping over 2% as of 6 a.m. in New York. Havens were underpinned with German bonds leading a broad based rally. Long-dated UK bonds outperformed after a soggy March GDP release. Currency markets saw a classic risk-off move, with the dollar, Japanese yen and Swiss franc trading well. Oil dipped, spot gold held a relatively narrow range. Coming up... Today's data will be focused on the weekly jobless claims release alongside April producer prices at 8:30 a.m. The EIA's natural gas storage data is due at 10:30 a.m. followed by the USDA's WASDE report at 12 p.m. Scheduled central bank speakers are limited with no Fed speakers on the docket, however we are due to hear from ECB's Gabriel Makhlouf at 7:30 a.m. The Treasury rounds off the week’s auctions, selling $22 billion of 30-year bonds at 1 p.m. US Foods Holding Corp. and WeWork Inc. are among the companies due to report earnings. What we've been reading Here's what caught our eye over the past 24 hours. - [US cities resegregated](. - There’s [criticism of Russia]( in China. - Don’t expect [China stimulus]( to save the global economy. - New [Switchblades for Ukraine](. - Did North Korea [lie about Covid](? - Bolsonaro woos [rural Brazil](. - The SEC is probing [Musk’s Twitter moves](. And finally, here’s what Joe’s interested in this morning If you take a financial risk and it pays off, you might take another one. And if that pays off, then you might take an even bigger risk the next time. And if that pays off, then you might start thinking you're a genius, and take on way more risk. There’s a way to make sense of the trajectory of the market in the 2010s, post-GFC, through the lens of greater and greater risk-taking. The bull market went on and on and every bet seemed to pay off. Sure there were dips along the way. But they were usually V-shaped dips. And then we got the mother of all V-shaped dips in the spring of 2020, when policymakers were able to stop the Covid recession almost instantly. And so after a decade of a bull market, investors realized that recessions could be stopped in their tracks, and risk-taking went wild, to the point where people were pouring money into profitless SPACs, tokens named after dogs, digital drawings of monkeys, and algorithmic stablecoins promising 20% payouts. It was the natural culmination of a decade-long bull run. Now the Fed is raising rates, and the meme stuff and crypto and growth stuff is getting crushed the hardest. But the question is why? What's the big deal if the Fed Funds rate goes from 0% to 0.8% or whatever? How does that change the value of Terra or a digital ape? Of course the Fed Funds rate alone actually doesn't matter. What matters is that the big risk-taking cycle is doing a 180, and the rate hikes while important are only a part of it. A point that [Mark Dow]( has made for years is that there isn't some mechanical or mathematical link between speculative activity and the Fed Funds rate. People kind of imagine that you cut rates and everything jumps and then raise rates and everything goes down. But it's not so simple. During the dotcom bubble, Fed Funds was around 5%. What's more, the Fed started hiking again in 2004, but the housing boom just kept going. In fact, a lot of the worst housing assets were created deep into the hiking cycle, around 2006, when the Fed had brought rates back up to 5%. Eventually the market turned and the housing boom crushed, but the point is that it wasn't a mechanical function of higher rates. Higher rates were just one contributing factor, ultimately, that caused the risk cycle to move into the other direction. So why is the super risky stuff cratering now? Basically because it went up a lot. Because it represented the pinnacle of risk appetite. And now that's reversing. And unlike the last 10 years, when it was clear that the Fed (or fiscal policymakers) could easily boost the economy when it started to flag, there isn't an equivalent easy solution to deal with high inflation. It's not easy to stop inflation dead in its tracks, like you can do with a recession. So the terrain going forward looks super rocky. Sure, the rate hikes are one factor contributing to the downturn. The bigger story, though, is the turn of a cycle that fueled more than a decade of risk. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. 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