Inflation On My Mind
Macro Commentary
Key Takeaways
- The US unemployment rate is now at its lowest level since 1969
- A 75bp hike at the September FOMC meeting carries a 70% probability
- The CPI print on Wednesday is expected to decrease to 8.7% from 9.1%
Investors waited patiently for Friday’s release of the unemployment rate, which improved to 3.5% from 3.6%, coupled with a surprising non-farm payrolls rise to 528k. The unemployment rate is at its lowest level since 1969, supporting claims by recession deniers that the robust labor market is at a good place despite the current challenges in the economy. Conversely, the 2/10 treasury yield spread continued to trend lower, as it moved from about -25 basis points last week to below -40 entering the weekend. Traditionally a forward looking recessionary indicator, current trend line points lower in the near term, with the spread tightening almost 200 basis points since March 2021. The yield curve has moved dramatically quarter to date, with the front end of the curve now over 100 basis points higher while the back end down about 25. Traders have priced in almost 70% probability of another 75 basis point hike at the next FOMC meeting in September.
The US Senate passed the $430 billion Inflation Reduction Act Sunday which focuses on healthcare policies, tax legislation, and climate investment. The most notable provision was a 15% minimum tax on corporations that earn over $1 billion a year. Obviously this could hurt company projections which benefited from a lower tax environment over the next decade, not to mention pivot midterm election outcomes. Escalating tensions between China and Taiwan have some concerns on the spillover effect on the economy, with possible supply chain as well as diplomatic issues similar to the on-going Ukrainian-Russian situation.
On-Chain Commentary
Key Takeaways
- Strong bullish rallies in tradfi have help pushed digital assets higher
- Technicals dating back to Bitcoin’s inception show price maintaining key levels
- Hash rate drops as industrial Bitcoin miners in Texas have curtailed power use
Ethereum fever continues to sweep through the digital asset futures and options markets as the blockchain marches toward one of the largest protocol changes to date. Now several years in the making, the consensus shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) means the chain will no longer require miners, in the form of GPUs, to confirm locks. Instead, entities or users with 32 Ethereum can participate as a validator to confirm transactions. Individuals with less than 32 Ethereum can also pool resources to participate as a validator. This form of PoS consensus already exists on several Ethereum competitors and although blockchain throughput will theoretically increase, further layer 1 scalability measures will not be added to the network until later on in the roadmap.
On a technical basis, Bitcoin and Ethereum continue to hold at or near their respective 200-week moving averages, previous all-time highs, and realized price, or aggregate average price of all coins moved on-chain. Historically, both the 200-week moving average and realized price have acted as a multi-month accumulation zone on Bitcoin and Ethereum for market participants in prior bear market lows. Over the next few weeks, so long as no lower price lows beyond the June and July lows are achieved, the likelihood of a mean reversion attempt to each coin’s 200-day moving average continues to increase.
