High Impact Events Trading... Bitcoin

US CPI - October Preview

1. CPI m/m
2. Core CPI m/m
3. CPI y/y

Forecasts

1. Overall CPI m/m is expected to show a 0.2% increase. The range of estimates is from 0.1% to 0.3%. Although the majority of economists surveyed by Bloomberg are aligned at 0.2%, there are a considerable amount predicting both 0.1% and 0.3%. I'd expect volatility regardless of any deviation.
2. Core CPI m/m is expected between 0.4% and 0.5%. Some economists are calling for 0.3%. The average forecasts is 0.43%. Outside of the few calling for the 0.3%, there's almost an even split between 0.4% and 0.5%, with slightly more predicting a 0.4% print tomorrow for core CPI.
3. CPI y/y follows the overall CPI forecasts. There's a range between 8.0% to 8.2%. While most are sitting at 8.1% there's enough at both 8.0% and 8.2% to expect some volatility regardless of any deviations from forecasts.

Recent impact (btc/usd) - See last month's US CPI data - September Follow up. This was the largest move on an economic data release (across asset classes) in recent memory.


Summary

As always, buckle up for US inflation data. US CPI data has been the most watched economic indicator for a while now. As the Fed wrestles with inflation, this data will tell us if the economy has responded to the Fed's aggressive rate hikes. So far, there's not much evidence it has.

The most recent Core PCE Price Index print, the Fed's favored measure of inflation, came in higher than expected at 0.6% vs 0.5%, and 4.9% on an annual basis compared to a 4.7% prior. If CPI ticks up like PCE did, strap in.

On a year over year basis, inflation started subsiding in July which was a measure as of June. That inflation figure was 9.1% followed by 8.5% in August and 8.3% in September.

Economists surveyed by Bloomberg are expecting this month's CPI data to show anywhere between 8.0% to 8.2% on an annual basis. Anything outside of that, I'd be expecting big moves with follow through. Although this scenario would require the core CPI data not being contradictory.

Currently, the markets are pricing in an 86% probability of a 75 bps rate hike in November. The December meeting is a lot more uncertain. It's mostly between a 50 and 75 bps hike. Rate probabilities:

November meeting:

December meeting:

On stronger than expected inflation data: Traders will start pricing in a greater chance of the 75 bps November rate hike. There's not much room to go from the 86% but expect that to go closer to being fully priced in (100%). Maybe more importantly, the December rate probabilities could see the markets start pricing in a greater chance of a 75 bps rate hike which would be significant considering only one Fed official predicted rates to reach 4.5% in 2022.

On weaker than expected inflation data: Barring any jarring miss, I wouldn't expect much movement in November rate probabilities. However, we could see a drastic decline in a 75 bps December hike probability as traders start pricing in a less hawkish post-November Fed. In this scenario the US dollar would fall while bitcoin appreciates.

It's important to always keep in mind with these releases where we see more than one data that they could contradict each other and result in a whipsaw. You don't want to be in the market when that happens.

I'd expect a lot of volatility at release time and we'll see a direction if both overall and core CPI both deviate from forecasts in the same direction.

As always, caution is advised.

We don't often see moves like this across markets so this was worth the visualization. Last month's CPI data rocked the markets across asset classes from crypto to energy to precious metals to currencies to equities. Here are some impacts from each asset class.

EUR/USD

USD/JPY

GOLD

CRUDE OIL

S&P

Super preview here EventsTrader. Thank you!

US CPI data - October Follow up

Both the core and overall number surprised to the upside, both deviating 0.2% from forecasts. Bitcoin sold off on the data, losing close to $1K before rebounding.



If the 75 bps November rate hike wasn't a certainty before, it is now. Before the release the market was pricing in about an 86% probability, now it's over 99%.


The December rate odds changed quite a bit. Prior to the release, the market was pricing in an over 50% chance of a 50 bps rate hike. Probabilities shifted and now the market is pricing in a 71% chance of a 75 bps rate hike in December.
The Fed enters the black out period next Friday and there's not much data on next week's calendar that can move the rate needle.

The price action charts are helpful for research. Thanks.

FOMC Meeting - November Preview


Forecasts and expectations

US Federal Funds Rate

US FOMC Statement

US FOMC Press Conference

General consensus is that the Fed will hike by 75 bps. The current probability for a 75 bps hike is 85.5%. If the Fed surprises with a 50 bps it would be a major shock.

Expect the rate statement as well as Powell's press conference to open the door to slowing down the pace of rate hikes, while staying non-committal (data-dependent) at the same time. Between tomorrow and the Dec FOMC meeting we'll have two employment reports, a PCE price index, and a CPI report. Those will likely garner a lot of attention and sway the Fed.

Since tomorrow's rate hike is already priced in, the focus shifts towards the December meeting. Currently, the probability between a 50 and 75 bps rate hike are split with a slight skew towards the 75 bps hike. Tomorrow this is where the focus will be as there's plenty of room to move.

Last meeting's Impact (btc/usd) (Jan thru July here)

Sept 21st



What to expect

As always with the FOMC meetings, be careful with any trades taken before Powell's press conference. As displayed in the impact history, whatever direction the market takes as the rate decision is announced, it can be quickly reversed 30 minutes later as Powell starts to speak.

As far as trading opportunities, the conservative approach is to wait until after Powell starts his testimony and a trend emerges. The two scenarios are:

1) A more dovish than expected Fed sends the market towards pricing in a 50 bps rate hike and bitcoin rallies as the US dollar sells off.

2) A more hawkish than expected Fed sends the US dollar in rally mode as bitcoin sells off.

There's always a third scenario where the markets remain confused and volatility and wild price swings ensue. Be careful out there!

Fed Target Rate Probabilities - Update before FOMC

Nov rate probabilities are little changed although shifted slightly towards the 75 bps rate hike. Again, it would be a major surprise if the Fed raised rates by anything but 75 bps.

Dec rate probabilities remain exactly the same going into the meeting.

Barring any rate announcement surprises the focus should be on the rate statement and even more so on Powell's press conference. The market will be watching for any hints on whether the Fed is opening the door to slowing down the pace of rate hikes. If they do so it should be bearish for the US dollar and positive for bitcoin.

It's expected between the rate statement and the presser, that the Fed signals slowing down the pace of hikes is possible but will remain data dependent. Remember, Powell will face a Q&A and if he doesn't stick to his script, anything can happen!

US Employment Data - November Preview

1. US Non-Farm Employment Change
2. US Unemployment Rate

Forecasts

1. NFP: Per Bloomberg’s survey of economists, the range of estimates are from 128K to 256K, excluding outliers. Most of those forecasts are between 175K and 225K. It's notable that most economists by a wide margin are calling for 175K. The average estimate is 198K and so is the median estimate.
2. Unemployment rate: Economists surveyed by Bloomberg are split between 3.5% and 3.6%. While slightly more are predicting 3.6%, the average estimate is 3.56%. 3.5% or the consensus 3.6% shouldn't be a surprise but <3.4% or >3.7% would be a quite the surprise. If the print is 3.5% or 3.6% NFP should take center stage.

Recent impacts (Aug impact, Jan - July impacts)

Sept 2

Oct 7


Outlook

While inflation data is garnering the most attention, the employment report is still a high impact indicator as we saw in October. Before December's FOMC meeting we'll still have one more employment report, along with CPI and PCE (one each).

The focus will again be on whether we start to see this year's hawkish Fed moves start to hit the labor market and if so to what extent. If the data is strong that could mean the Fed is more willing to stay aggressive on rates. If we finally see weaker data, then that might open the door a little wider for the 50 bps Dec move.

In this environment, it's all about rates. Currently, the Dec probabilities are split between a 50 bps and 75 bps rate hike, at 47% and 53% respectively.

Potential Scenarios:

- If NFP comes in lower than expected with the rate as expected or ticking up, we could see bitcoin rally while the US dollar sells off.

- If NFP comes in higher than expected and the rate stays the same or better, bitcoin could sell off while the US dollar rallies.

- This is a simultaneous release and susceptible to whipsaws if the unemployment rate and NFP paint a different picture.

The extent of any rally/sell off will be dependent on deviations from forecasts. The more deviation, the more volatility we should expect.

Avg Hourly Earnings (Wage inflation) will be released at the same time and is expected at 0.3%. The Fed does not want to see that number tick higher. If it does that would mean a greater probability of a more hawkish Fed. So keep your eye on that as well.

As always, be careful out there and good luck!

This reaction to the employment data doesn't make a lot of sense.

So what happened with the data?

NFP beat expectations: 261K vs ~197K expected. Prior was revised up to 315K from 263K.

Average hourly earnings beat expectations: 0.4% vs 0.3% expected. Although on an annual basis it ticked down to 4.7% from 5.0%.

Unemployment rate ticked up to 3.7% vs 3.6% expected. 3.6% forecast was a bit deceiving since the average forecast was 3.56%. Even still it's not a huge miss on the rate.

Market seems to be pricing in a less hawkish Fed. Data should've caused the opposite reaction.

US CPI - November Preview

1. CPI m/m
2. Core CPI m/m
3. CPI y/y

Forecasts

1. Overall CPI m/m is expected to show a 0.6% increase. The range of estimates is from 0.5% to 0.7%. The distribution of forecasts is showing quite a bit of uncertainty about where the number could fall. Most of the more recent forecasts are skewed towards 0.7%.
2. Core CPI m/m is expected at 0.5%. Some economists are calling for 0.4%. The average estimate is 0.47%. The range of estimates is 0.4% to 0.6%.
3. CPI y/y consensus is 7.9%. The low estimate is 7.8% and high is 8.1%. The forecast distribution between 7.8% and 8.1% is relatively evenly split. The avg forecast is 7.94%.

Last month's impact (btc/usd)

It's also worth taking a look how September's release rocked markets (other assets classes)


Summary

All eyes will be on CPI. This one will be important. It's the last CPI report before the December FOMC meeting. The December rate probabilities are almost evenly split between 50 bps and 75 bps.

This is probably the first major release that will start really moving the Dec rate probabilities. The Fed is maintaining their data dependent approach, which gives this data (along with others) added significance. Some expect the Fed to start slowing down the pace of rate hikes starting next month. In last week's Fed statement, they pointed to "the lags with which monetary policy affects economic activity and inflation..." They're starting to pave the way for smaller rate hikes and it could happen in December.

While there's risk all around, the largest market impacts could be if inflation comes in softer than expected. Again, I'd expect big moves regardless, but if inflation shows slowing, there could be some follow through as the market starts pricing in a more dovish Dec Fed. A softer reading could give them some data to lean on for a smaller, 50 bps rate hike.

A stronger than expected inflation reading would dampen those expectations and probably keep the markets in limbo until the PCE reading later this month.

Potential scenarios:

On lower than expected inflation data, bitcoin would rally as the US dollar falls. This is where the most risk lies and any significant deviation from forecasts would provide ample trading opportunities.

On higher than expected inflation data, bitcoin would fall as the US dollar rises. Any significant deviation from forecasts could provide some follow through.

This is a release with an increased chance for a whipsaw. If the headline and core data paint a different picture, look out and don't expect any immediate direction.

The extent of any potential rally will be highly dependent on deviations from forecasts. There could be a greater chance of bitcoin rally on a miss. However, given the latest events surrounding FTX and the possibility of new information coming out, there's outside risks that could play a bigger role than we'd otherwise see.

As always, be careful out there!

Bitcoin after CPI is heading higher as the market starts pricing in a 50 bps rate hike in Dec (rather than 75 bps).

There's been a big shift in December rate hike probabilities. 50 bps is looking very likely but still plenty of time to go.

Yes! And there is one more CPI data (on 13th Dec) before the next Fed meeting. One miss may be an aberration but two would make a trend!

US PPI - November Preview

1. While the data is important, historically it's not one that presents trading opportunities.
2. Overall PPI is expected at 0.4%. The range of estimates are from 0.3% to 0.6%. The average forecast is 0.43%
3. Core PPI is expected at 0.3%. Range of estimates are mostly from 0.2% to 0.4%. The average forecast is 0.32%.
4. I don't expect this data to have much impact on the December rate probabilities barring some outlandish surprises.

Currently, the market is pricing in an over 80% chance the Fed slows down the pace in December and goes with the 50 bps increase.

Recent impacts (btc/usd) - Below are the last 4 months, showing the actual vs forecast along with the chart (btc/usd) at release time. Concrete evidence that trades taken at release time are risky and probably leading to short-term losses.

July:
Aug:
Sept:
Oct:


Summary

It's best to stay on the sidelines rather than getting overly aggressive. PPI data is always worth monitoring. We are likely to see some volatility around release time but as recent history shows, any move should be limited. If there is risk related to this data it would be to the upside. Much hotter than expected PPI data could trigger some market participants to potentially put a Dec 75 bps rate hike back on the table. Doubtful, but can never rule it out.

As always, be careful out there and good luck traders!

Thanks for the analysis EventsTrader. I think you're right that the sidelines are the best play, but if I had to trade it, I'd throw the ole' reverse-straddle at it. Enter on the extreme, exit on the reversion.

US PPI data - November Follow up

Both the overall and core PPI figures came in much lower than expected, outside the range of estimates. On top of that, last month's data was revised lower.
Bitcoin ticked up on the data release but quickly reversed, giving back the gains. This was expected. Historically, Bitcoin reacts this way to PPI.

December Fed hike probabilities remain where they were yesterday.

Expect more pricing in of a Dec 50 bps rate hike leading up to the next FOMC meeting. In the last Fed rate statement, they began to point to 'lags in monetary policy' paving the way for slowing down the pace of rate hikes.

A more dovish Fed is bullish for Bitcoin, although there are other factors at play right now which are putting some heavy selling pressure on the entire crypto space.

US Core PCE Price Index - November Preview

US Core PCE Price Index m/m


Forecast

1. The range of estimates from economists surveyed by Bloomberg are mostly between 0.2%-0.4%. The median estimate is 0.3% and the average estimate is 0.29%. Anything outside of 0.3% would be considered a surprise.

Recent impacts (btc/usd)

Sep 30

Oct 28


Summary

Outside of the August data, core PCE price index still hasn't shown any signs of slowing down. As shown in the graph, even if we see the data come out in line with expectations, it still shows strong, sustained inflation.

This is the last PCE data before the Fed's December meeting and it will garnish a lot of attention. This is the Fed's favored inflation metric and any deviations from forecast could move Dec rate probabilities.

Current December rate probabilities are sitting at 65% for a 50 bps rate hike, only 35% for the 75 bps. Given the latest Fed Speak, I'd expect those to continue to trend towards the 50 bps, barring any significantly stronger than inflation reading.

After core PCE price index, we'll still see NFP (on Friday), PPI, and CPI data. Expect them all to continue to impact markets with inflation data most in focus.

Recent history shows that this data doesn't present any major trading opportunities. However, any data that can move rate probabilities should be closely monitored.

A stronger than expected reading would put more selling pressure on Bitcoin as the US dollar appreciates. It would like require a significant deviation from forecasts to drastically change December rate probabilities.

A weaker than expected reading might be the scenario where follow through is more likely. If the inflation data is weak enough, the market start pricing in a higher probability of the Fed slowing the pace of rate hikes, or a 50 bps hike in December.

I wouldn't recommend trading this data. If you do, give it time and wait for a trend to emerge, if any. Keep in mind that ISM Manufacturing PMI will be released 90 minutes later and could likely add to price volatility.

Caution is advised and as always, good luck traders!

US Employment Data - December Preview

1. US Non-Farm Employment Change
2. US Unemployment Rate

Forecasts

1. NFP: Per Bloomberg’s survey of economists, the range of estimates are mostly from 170K to 240K. The average estimate is 197K and the median is 200K.
2. Unemployment rate: The range of estimates are between 3.6% and 3.8%. There's a relatively even split. There's no a lot of certainty in the 3.7% consensus.

Recent impacts (Aug impact, Jan - July impacts)

Oct 7th

Nov 4th


Outlook

NFP is always a market move so pay attention! We should start to see the aggressive rate hikes start impacting the labor market. A weak jobs report could add to the chances that the Fed will pivot and slow down with rate hikes. Currently, here are the rate probabilities for the December FOMC meeting:

The latest unemployment claims came in lower than expected, and overall the data has yet to show evidence of a deteriorating job market. The Fed starting raising rates in March 2022, yet unemployment claims remains relatively low. You'd expect to see claims tick up before any weakness represents itself in the payroll data. Here's claims data since March:

Stronger than expected data could trigger markets to start pricing in a greater chance of a more aggressive Fed. This would bring selling pressure to Bitcoin as the US dollar moves higher. This would be a surprise though. Any 75 bps December rate hike might require very hot US PPI and CPI figures released later this month (but before the FOMC meeting).

Weaker than expected data would add to the current sentiment that the Fed is very likely to only hike by 50 bps and slow down the rate of hikes. This is positive for Bitcoin and bearish for the US dollar. This is the more likely scenario.

Remember, this is a simultaneous release and susceptible to whipsaws if the unemployment rate and NFP paint a different picture. Avg Hourly Earnings (Wage inflation) will be released at the same time and is expected to tick down to 0.3%. The Fed wants to keep that number low in order to justify the pivot to 50 bps.

NFP will always have the potential to trigger big moves across all dollar-denominated assets. It's best to sit tight and wait to see if a trend emerges. If this triggers a big move there will be plenty of opportunity. There's slightly more risk in a weaker report as traders would continue to price in the Fed pivot. As always, caution is advised. Good luck traders!

US CPI - December Preview

1. US CPI m/m
2. US Core CPI m/m
3. US CPI y/y

Forecasts

1. US CPI m/m: range of estimates are in a range of 0.2% to 0.4%. Median forecast is 0.3% and the average is 0.28%.
2. US Core CPI m/m: range of estimates are mostly in a tight range between 0.3% and 0.4%. The median estimate is 0.3% and the average is 0.33%.
3. US CPI y/y: range of forecasts are between 7.2% to 7.4%. The median forecast is 7.3% and the average is 7.31%.

Last month's impact

Last months data came in weaker than expected and rocked markets.

BTC/USD

S&P

EUR/USD

USD/JPY

Gold

Crude oil

Summary

The markets are expected to remain sensitive on any inflation data but particularly CPI. While it has come down from the peak in July, it remains extremely elevated. Still high enough to expect the Fed to remain more hawkish.

Dec rate expectations are still more split than you’d expect with the FOMC meeting just days away. In all likelihood the Fed will hike rates by 50 bps but rate probabilities are still split about 75/25.

I’m not sure this CPI report will impact what the Fed will do on Wednesday. It will move Feb rate expectations which currently have room to move as the markets are undecided about what the Fed will do.

On lower than expected inflation data, bitcoin would rally as the US dollar falls. On higher than expected inflation data, bitcoin would fall as the US dollar rises. Any significant deviation from forecasts could provide some follow through. This is a release with an increased chance for a whipsaw. If the headline and core data paint a different picture, look out and don't expect any immediate direction. The extent of any potential rally will be highly dependent on deviations from forecasts.

As we saw last month, this data can provide ample trading opportunity. Be patient! As always, good luck out there!

US CPI data - December Follow up

Today's CPI data came in weaker than expected, outside most range of estimates.

Overall CPI: 0.1% vs 0.3%

Core CPI: 0.2% vs 0.3%

CPI y/y: 7.1% vs 7.3%

Forecasts from major banks were all 7.2% or higher.

Bitcoin rallied on the data while the USD sold off.


On a year over year basis, it's still elevated at 7.1% but continuing to subside since reaching a peak in July (9.1%).


It's widely accepted that the Fed will hike by 50 bps at tomorrow's FOMC meeting. If they do anything other than that it'll shock the markets. After this latest CPI data, rate probabilities for the Feb FOMC is now skewed towards a 25 bps.


There is still a lot of time and plenty of data before the next FOMC meeting, but it looking like there will be further slowing of the pace of rate hikes. A more dovish Fed is good for bitcoin. In light of recent events (SBF), this is a welcomed development for the crypto markets.

FOMC Meeting - December Preview

1. US FOMC Economic Projections
2. US FOMC Statement
3. US Federal Funds Rate
4. US FOMC Press Conference

Forecasts and expectations

US Federal Funds Rate - The Fed is widely expected to raise rates by 50 bps. Anything other than that would be a shock.

US FOMC Statement - This will be scrutinized for any clues about the Feb FOMC meeting. Look for the statement to change language to give the Fed flexibility to slowdown further in Feb. This would be a dovish development.

US FOMC Economic Projections - The focus will be on the terminal rate. Last dot plot showed a terminal rate of 4.6%. That's expected to go up but the question is by how much?

US FOMC Press Conference - This will be closely watched and it'll be all about clues for the Feb meeting. The markets will also be looking for guidance about when the hikes will end and how long they'll remain on pause thereafter.

What to expect

As always with the FOMC meetings, be careful with any trades taken before Powell's press conference. As displayed in the impact history, whatever direction the market takes as the rate decision is announced, it can be quickly reversed 30 minutes later as Powell starts to speak. Despite the latest CPI report coming in weaker than expected, it's still very elevated. I'd expect Powell to continue to be focused on fighting inflation while reiterating the Fed will remain data dependent. The market usually interprets this is dovish.

As far as trading opportunities, the conservative approach is to wait until after Powell starts his presser and a trend emerges. The two scenarios are:

1) A more dovish than expected Fed sends the market towards pricing in a 25 bps Feb rate hike and bitcoin rallies as the US dollar sells off. This is the more likely scenario.

2) A more hawkish than expected Fed sends the US dollar in rally mode as bitcoin sells off.

There's always a third scenario where the markets remain confused and volatility and wild price swings ensue. Be careful out there!