High Impact Events Trading... Bitcoin

Here's tedtalksmacro's take:

US Employment Data - January Preview

1. US Non-Farm Employment Change
2. US Unemployment Rate
3. US Average Hourly Earnings m/m

Forecasts

The unemployment rate is widely expected to remain at 3.7%. Average hourly earnings is expected to tick down to 0.4% from 0.6%. The consensus estimate for NFP is an increase of about 200K. Economists surveyed by Bloomberg were mostly between 175K and 245K. The average is 208K and median 200K. Those surveyed by Reuters were mostly in the same range of estimates.

Other employment data is showing no signs of a slowing labor market despite a looming recession and the Fed’s seven-straight jumbo rate hikes. Below we’ll look at Unemployment Claims, JOLTs, and ADP.

Unemployment Claims - Unemployment claims still relatively low. Latest figure of 204K is below the pre-pandemic average (218K). Continuing claims, which measure ongoing unemployment benefits (or those who remain unemployed), remain slightly elevated but nothing that could signal labor market weakness.

JOLTs - Reflecting demand for employment remains high. Companies are still looking for workers to fill positions. Although there’s been an uptick in layoffs and a slight decrease in hiring there’s little indication that the labor market is softening. It should also be noted that this week’s data was as of November.

ADP - Today’s data came in higher than expected (235K vs 150K exp) and continues to show a strong labor market. While ADP employment data is a good measure of job market health it shouldn’t be used as a precursor for NFP. The correlation isn’t high.

Feb FOMC rate hike probabilities

Rate rate probabilities for the next FOMC meeting are almost split between a 25bps and a 50bps. Although the markets are still largely focused on inflation, there’s room to move in either direction on the data tomorrow.

Last month's impact

During last month’s data NFP came in higher than expected (263K vs 200K exp), unemployment rate was unchanged (3.7%), and average hourly earnings ticked up (0.6% vs 0.3% exp). The US dollar rallied across asset classes.

Dec 2nd

What to expect

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. Although a more aggressive Feb FOMC may require hot US PPI and CPI figures released later this month.

Weaker than expected data would add to the sentiment that the Fed will only hike by 25 bps. This would be positive for Bitcoin and bearish for the US dollar.

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 0.4%. The Fed is keeping an eye on wage inflation and any significant deviation from forecasts would put this data in focus.

NFP always has the potential to trigger big moves across all dollar-denominated assets. It's best to sit tight and wait for a trend emerge. If the labor data triggers a big move there will be plenty of opportunity. There's slightly more risk in a weaker report as the market would continue to price in a less aggressive Fed. As always, caution is advised. Good luck traders!

US Employment Data - January Follow up

Although NFP and the unemployment rate beat expectations, it was wage inflation that took center stage. Here's how the market reacted:

What was behind the move?

NFP came in at 223K vs 200K expected and unemployment rate was at 3.5% vs 3.7% expected. Normally we'd have expected the US dollar to rally on the data but it was average hourly earnings the market was focused on. Not only did today's print come in lower than expected (0.3% vs 0.4% expected), but the Previous was revised down to 0.4% from 0.6%. On an annual basis, wage growth has slowed to 4.6%. The market was expecting 5.0%. The lower wage inflation data is music to the Fed's ears and it now more justifiably allows them to further consider the 25 bps rate hike (over 50 bps).

Rate probabilities for February shifted considerably. The market is now pricing in a 75% chance of a 25 bps rate hike at the Feb FOMC meeting. Prior to the release it was around 50%.

To add fuel to the USD dump, 90 minutes after the US employment data, ISM Services PMI missed big at 49.6 vs 55.0 expected. That's the lowest reading since June 2020. Not many could've predicted the USD would sell off on a positive NFP reading, but it shows just how much inflation is in focus right now. Until next time, good luck out there fellow traders!

Fed Chair Powell Speaks

Ahead of CPI on Friday, it's unlikely that he'll make any definitive statements on whether the Fed will hike by 25 or 50 bps. Regardless, it wouldn't be surprising to see the markets move. He'll likely stick with the script of remaining data dependent. I'd keep an eye out for how much he emphasizes 'policy lags' because that's perceived as dovish. As far as potential hawkish statements go, it could be related to peak rates. At an extreme he could reiterate some Fedspeak we heard yesterday about 'willing to overshoot.' Powell due up in 35 minutes.

can't agree more!

US CPI - January Preview

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

Forecasts

1. US CPI m/m: I see good potential for a lower number even though the consensus forecast is already low at -0.1%. As we've gotten closer to the release, the forecasts are skewing lower. More recent forecasts are important because they're usually done with newer information. The range of forecasts are mostly between -0.2% and 0.1%. Median forecast is -0.1% and average is -0.05%.
2. US Core CPI m/m: Range of forecasts are between 0.2% and 0.4%. The median is 0.3% and the average is 0.29%.
3. US CPI y/y: Range of forecasts are between 6.3% and 6.8%. Although there's a wide range, both the median and average forecasts are 6.5%. There's plenty of uncertainty here and ripe to trigger markets.

Recent impacts

Dec 13 - On lower than expected CPI data, the USD sold off across the board:

Nov 10 - On lower than expected CPI data, the USD sold off across the board:

Summary

CPI remains the most closely watched US (and global) data. This month will be no different. Consensus for CPI is that it'll show 6.5% on an annual basis. That would be the lowest level since Nov 2021 and the sixth consecutive month of falling inflation.

Feb FOMC hike probabilities are telling us that most are expected the Fed to further slow rake hikes in Feb. Currently, a 25 bps hike is already 78% priced in.

Last week's employment data showed just how much the markets are focused on inflation data right now. The market shrugged off a better NFP and unemployment rate, and on lower wage inflation the USD sold off. Everything denominated in USD rallied, including bitcoin.

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 significant 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 long as both the core and overall number don't contradict each other, there should be ample trading opportunities. Stay patient. As always, good luck out there!

Thanks buddy, very helpful analysis!

The story after CPI is rate expectations for the Feb and March FOMC meetings. Both CPI and the core number came out as expected. Then, after the release Fed's Harker came out and backed the 25 bps rate hike for Feb.

After the release, as of 9am, the market is pricing in a 25 bps increase for Feb and March.

Feb rate hike expectations:

March rate hike expectations:

US PPI - January Preview

https://www.cryptocraft.com/calendar?day=jan18.2023

1. While the data is important, historically it's not one that presents trading opportunities. Additionally, it's being released alongside US retail sales. Expect volatility.
2. Overall PPI is expected at -0.1%. The range of estimates are from -0.3% to 0.1%.
3. Core PPI is expected at 0.1%. Estimates are mostly split between 0.1% and 0.2%. The average forecast is 0.12%

This data is not expected to move the needle in terms of Feb rate hike expectations as a 25 bps hike for Feb is almost fully priced in.

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. However, with retail sales being released at the same time, there could be more volatility than you'd otherwise expect.

Any shift in rate expectations will be related to FOMC's March meeting. Currently, traders are betting that after a Feb 25 bps rate hike, the Fed will follow up with another 25 BPs.

There's a lot of data dropping at the same time. Even if we do see the market take a direction, it'll probably after a knee jerk reaction. As always, be careful out there and good luck traders!