Crypto, Stocks Headed for Correction if CPI Print Isn’t Strong
Wall Street’s ‘fear gauge,’ has remained well below its one-year average, indicating traders think that have handle on the Fed’s next moves
Blockworks exclusive art by Axel Rangel modified by Blockworks
Ahead of Thursday’s Consumer Price Index print, investors and analysts are speculating whether cryptocurrencies and equities can maintain their recent rally.
Bitcoin and ether stayed cautiously in the green Tuesday afternoon in New York after posting overnight gains Tuesday that saw both currencies lock in year-to-date gains. The top two cryptos are up more than 5% and 11% since the start of the year, respectively, data shows.
“If risk appetite remains intact post inflation report, Bitcoin could make another run at the $18,500 level,” Edward Moya, senior market analyst at Oanda, said in a note Wednesday. “If core prices prove to be troubling, Bitcoin could decline back towards the December lows.”
Equities have similarly hit the ground running in 2023 after a disappointing 2022. The S&P 500 and Nasdaq Composite indexes posted around 1% and 1.3% gains Wednesday afternoon, respectively.
Fortunately for risk-asset traders, the CBOE VIX Index, known as Wall Street’s ‘fear gauge,’ has remained well below its one-year average of 25.6 for 42 trading days, Nicolas Colas, co-founder of DataTrek Research, said.
“This is the longest run of sub-25 VIX readings since the start of the current market worries over Fed policy, recession, and so forth,” Colas said.
The trend is indicative of markets thinking they have the Federal Reserve’s next moves correctly mapped out, but stocks are still not fully out of the woods, Colas warned. Fed policy may not be driving equity prices as much as it once was, but the Federal Open Market Committee’s meeting at the end of the month will still hold some weight.
The market is banking on CPI numbers proving inflation is letting up, but the first print of 2023 is more nuanced than the headline number, which was the main focus on 2022, Tom Essaye, founder of Sevens Report Research, said. Commodity, housing and goods prices are all trending lower, so core CPI, which excludes volatile food and energy, is going to be key, he added.
“The bottom line is that we must see inflation metrics continue to fall quickly if the market is going to hold these levels and hope to sustain a broader rally,” Essaye said.
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