12 Jul 2022

Market bracing for 8.8% CPI release on Wednesday

June U.S. CPI numbers are released on Wednesday. The last release ignited the June sell-off in bitcoin, and the market expects a 40-year high YoY level of 8.8%. Will expectations be right this time?
Correlations between bitcoin and equities remain high as BTC’s 30-day correlation to Nasdaq and S&P 500 stays above 0.5. Following the crypto-specific sell-off related to UST’s collapse, correlations have declined from a peak above 0.8. In the period that followed, equities recovered, while bitcoin saw flat returns. However, as the inflation surprise of June 10th reached the market, correlations again grew, while bitcoin plunged and new collapses introduced new layers of unresolved contagion and uncertainty. Sam Bankman-Fried of FTX noted last week that he thinks that the contagion situation is resolved. As crypto-specific market uncertainty gets resolved, traders should prepare for equity correlations to resume, and we note a slight growth in correlations last week. This week is an important macro week, with the June U.S. CPI release coming up on Wednesday.
Source: Tradingview
CPI Wednesday
On Wednesday, July 13th, the June U.S. CPI inflation numbers will be released, and the market is expecting continued growth of the year-over-year CPI to 8.8%, up from the May year-over-year CPI of 8.6%.
Source:, Tradingview
Earlier this year, U.S. inflation releases have been affiliated with volatile days in the crypto market, with the two most recent CPI releases creating havoc in the market. The above-expected April CPI release on May 11th saw bitcoin plunge by 6%. However, while some of this carnage may be affiliated with CPI, this also occurred during the collapse of UST and Luna, which was likely the key component in BTC’s crash then. The May inflation release on June 10th, however, surprised the market. After weeks of ranging, this CPI release pushed BTC down 3.4% and became the initial catalyst leading to the liquidation of Three Arrows Capital and the ensuing mayhem in the lending sector. The June CPI release was particularly concerning, as it surpassed the year-over-year peak from April, illustrating that inflation had yet to be contained. Now, the market is bracing for further growth in the CPI, expecting new highs of 8.8% YoY. Inflation surprises towards the upside lead to enhanced expectations of further tightening of monetary policies by the Federal Reserves. These contractionary policies have a broad impact on equities, and this macro backdrop has been an important factor in bitcoin's bear market since November 2021. Be prepared for volatility following Wednesday's CPI print at 08:30 E.T.
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