CPI Report - Navigating Macro Trends & Crypto Insights
Macro
Before the release of Thursday’s CPI report, economists had consistently provided similar estimates for the month-over-month change in the headline figure throughout the year, with only two months where their estimates were slightly higher than the actual figure. That trend continues as CPI inflation increased to 3.2% year-on-year, with a growth of 0.2% month-on-month, all of which were in line with estimates provided by economists leading up to Thursday. Meanwhile, Core CPI inflation decreased to 4.7% year-on-year, marking the lowest level since October 2021, with a growth of 0.2% month-on-month. In June and July, core inflation reached its lowest point since before the inflation surge in early 2021. This can be attributed to the cooling rent prices and falling used vehicle prices, which are two significant factors driving the slowdown. Used car prices continue to decline as semiconductor shortages and other supply chain issues that have persisted over the last few years have been easing in 2023.
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However, it is important to note that falling energy prices are partially offsetting the rising prices of food, core goods, and core non-housing services. Despite this, it is remarkable how much of the year-on-year CPI inflation is driven by lagging rent price data. Year-on-year inflation is now almost entirely driven by core services prices, which includes lagging rent prices. Energy's contribution is significantly negative, while core goods' contribution is extremely low, and food's contribution is declining.
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Crypto
Following the release of the report BTC rallied from $29,480 to $29,704 into the afternoon only to fade to $29,432 at the close for US markets. BTC and ETH’s price sensitivity to macro events like CPI has been waning relative to this same time last year and is increasingly being driven by flows and market positioning. As we mentioned in our report to begin the week, options positioning at the 30K level in BTC is being dominated by call sellers as well as at the 31K and 32K levels. Hedging activity by options market makers starts to impact price as we approach expiry, in this case creating resistance, which explains the failure for the price of BTC to surpass this level over the last two weeks.
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ETH has similar dynamics at the 1900 level. With that being said, 7-day realized volatility in BTC is still in the low 20’s, with ETH printing a 19 at the close of US trading. 7-day Implied Volatility in ETH and BTC are in the mid to high 20’s.
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We will be keeping a close eye on the weekly expiry in crypto this Friday and trad-fi options expiry next week to flag any significant changes in behavior. The next catalyst traders are looking at in their calendars is the deadline for the SEC to decide on Ark Invests Bitcoin ETF, which is set to expire on Sunday, August 13th. However, it is important to note that the SEC has the option to further delay their decision, which would push the next deadline to November 11th. As it stands right now volatility markets are not pricing in any event risk with implied volatility historically low.
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Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.