The forthcoming U.S. Consumer Price Index (CPI) data release carries significant implications for both the traditional and crypto markets. Arguably, anticipation permeates both scenes, as metrics spotlight potential resurgence of inflation in the coming months – a scenario that could inflict turmoil on risk assets.
The U.S. Labor Department is slated to disclose the July CPI on Thursday. Estimates suggested by economists indicate a month-on-month rise of 0.2% in July, mirroring June’s trajectory. Should this prediction hold, it would mark a soothing of the inflation rate, a prospect that the Federal Reserve would likely receive favorably, especially given the now comparably restrictive policies in place.
By consequence, traders might find renewed confidence to intensify their risk asset profiles, inclusive of bitcoin. This could align with strengthening dovish market expectations, should the data conform to estimates. Rate cuts have been forecasted, as the Federal Reserve’s lending rate mountain is believed to have reached its peak in July, followed by an anticipated descent next year.
However, many traders might be misguiding their anticipations, according to Noelle Acheson, author of the Crypto is Macro Now newsletter. Acheson advocates for a shift in emphasis toward future-facing metrics that hint at looming stagflation. Emphasizing the limitations of the CPI data, whose vision is oriented retrospectively and is thus prone to base effects flustering the true picture, Acheson encourages a broader perspective.
Acheson relays observations of climbing gasoline prices in the U.S. and rising FOA food index values, alongside the exhaustive U.S. petroleum supply, anticipated to impel oil prices upward. The CPI is particularly attuned to oil price alterations.
The Cleveland Fed’s current forecasts project the CPI for July at 0.41%, vastly exceeding the 0.2% consensus prediction. In alignment with this, they also project a 0.6% inflation rate in August, which could escalate to a 7.4% annualized CPI rate. Stagflation poses a formidable risk to assets, especially stocks. However, bitcoin’s downside appears marginally shielded, due to factors like the comparatively scant participation from macro players, the spot-ETF narrative, and bitcoin’s resonance with gold.
Analysts from ING have warned that the arduous battle against inflation is far from over, as evidenced by the persistent buoyancy of bond yields. Against these projections, it is crucial to remember the inverse relationship between bitcoin and U.S. bond yields. The U.S. 10-year yield has held steady above 4% in the face of progressing food and energy price shifts. Once July’s U.S. inflation reports are released, U.S. inflation data is likely to be closer to 3.5% than 3% and core U.S. inflation near 5% rather than 4%, analysts added.
Consequently, while the official data remains reserved for release, the anticipatory projections suggest a landscape poised for a renewed uptick in inflation, testing the resilience of risk assets in both the traditional and crypto markets.
Source: Coindesk
