In the wake of today’s Consumer Price Index (CPI) data release at 8:30 am EST (12:30 pm GMT), the Bitcoin and crypto market is poised on the edge of its seat. With traditional markets and central banks closely monitoring the inflation metrics, the ripple effects on the digital asset market could be profound.
Wall Street is bracing for the July CPI data, with expectations that both the headline and core indices will rise by 0.2% from June. This would adjust the 12-month core CPI to 4.7% from June’s 4.8%, while the headline index (YoY) is predicted to ascend to 3.3% from June’s 3.0%.
Thomas Lee from Fundstrat Global Advisors took to Twitter, stating, “July CPI going to be revelatory.” He further elaborated on the potential outcomes: “If >0.3% mom = bad. If <0.2% mom = good.”
Remarkably, inflation is expected by most experts to pick up again in the coming months. According to the Cleveland Fed’s forecasts, the headline CPI inflation YoY is set to experience a steady climb: from the reported 3.0% in June 2023, it’s expected to rise to 3.4% in July and further to 4.1% in August. Many investors rely on the Cleveland Fed forecast.
JP Morgan’s projections also signal a re-acceleration in the US CPI, with July, August, and September expected to register at 3.33%, 3.46%, and 3.32% YoY respectively.
Could Bitcoin And Crypto Get A Surprise?
Fundstrat’s recent in-depth analysis suggests a potential positive surprise for the financial markets. “Our data science team expects Core CPI to come in at +0.15% or better MoM,” the report stated. This is notably below the consensus estimates of +0.22%. The analysts argue that the Cleveland Fed forecast is wrong because the model is a relatively simple nine variable model, leaving out crucial disinflationary catalysts.
The analysis emphasizes the outsized contribution of used cars and housing to inflation. “Many investors fret that inflation is set to pick up again… But investors overlook that used cars and housing are such outsized contributors to inflation.”
This prediction is anchored in the disinflationary pressures exerted by falling used car prices and a cooling housing market. Since the end of 2019, autos and shelter have accounted for a significant 66% of core price increases. If these sectors continue their cooling trend, the overall inflation rate could be tempered.
Accordingly, if the CPI data aligns with Fundstrat’s predictions, it could lead to a more dovish stance from the Federal Reserve. This, in turn, could weaken the US dollar, providing a potential boost to Bitcoin and crypto.
Analyst “Material Indicators” highlighted the importance of liquidity in the market, especially in the lead-up to significant data releases like the CPI. “What matters between now and then is where liquidity is stacked and where it’s thin,” they noted, hinting at the potential for rapid price movements in the crypto market. The areas at $29,000 to the downside and $30,000 to the upside remain the key areas of support and resistance at this time.
As Thomas Lee aptly put it, this release is set to be “revelatory.” Whether this revelation will be in favor of the Bitcoin and crypto bulls or bears remains to be seen. Right now, markets price an 85% chance of no rate hike at the next September meeting according to the FedWatch tool. It will be interesting to see if today’s CPI report changes that.
At press time, the Bitcoin price stood at $29,565.
Featured image from iStock, chart from TradingView.com