Bullish CPI print – can markets see relief?

GB Market Commentary 10/11/2022

by Marcus Sotiriou

After Bitcoin plummeted to around $15,500 yesterday, it has rallied back above $17,000 today following a very bullish CPI report. Despite the major banks all predicting a month-over-month increase of headline CPI to be 0.5% or 0.6%, it was actually 0.4%. Core CPI was expected to increase month-over-month by 0.5% but the actual figure was 0.3%. Furthermore, headline CPI was expected to increase year-over-year by 7.9% but it was actually 7.7%. This provides some optimism for stocks and crypto at a time of extreme fear, as the inflation figures signal to the Federal Reserve that they can be less aggressive with tightening conditions.

Investors were cautious and defensive leading into this CPI print, preparing for the potential of higher-than-expected inflation or an unexpected result in the mid-term election. This is shown by Bank of America reporting net outflows across all of their investors last week (institutional and retail). In fact, JP Morgan gave headline CPI of 7.7-7.9% increase of a 20% chance, estimating that the S&P 500 would bounce 2.5-3.5% if this were to happen (7.7% ended up being the actual figure). Now that these concerns are out of the way, investors can reallocate funds, and we have seen the S&P 500 and Bitcoin bounce following the news.

Within the crypto market, uncertainty remains around FTX’s situation. After Binance announced yesterday that they can no longer go through with acquiring FTX, and returning funds to customers, SBF finally broke his silence on the matter on Twitter, whilst apologising multiple times. In terms of next steps, he said, “right now, we're spending the week doing everything we can to raise liquidity.”

Due to the mess FTX are in, I think it is a low chance that they will be able to raise liquidity, and until we find out the crypto market will remain unsettled – if FTX are unable to raise liquidity we are unsure how bad the contagion will be.

Whether they raise funds or not, it is apparent that FTX’s failure has set the industry back in terms of consumer confidence, but gives rise to crypto platforms that prioritise transparency. Even whilst this blackout period was ongoing, FTX was still sending money to Alameda Research. SBF claims Alameda is “winding down trading” but a halt of trading should be implemented, with customer funds topped off first.

The crypto industry is yet to evade the issue of opaque centralised entities, which has been experienced in TradFi, but I am confident the collapse of such entities will lead to the construction of a framework which ensures transparency is prioritised, resulting in consumer confidence being restored.