FOMC + CPI Week
What Does Historical Data Say?
Preface
There’s been a lot of buzz around US crypto regulators, Coinbase and Binance this week. Amid all that, price action is still king, and it’s important not to get emotional about it all. I’ve seen some Crypto Twitter OG’s spreading FUD and misleading info, which means we’re probably close to turning a corner imo…
News Headlines
- SEC sues Binance and CEO Changpeng Zhao for Violating US Securities Law
- SEC claims Binance “concealed the fact that it was commingling billions of dollars in investor assets and sending them to a third party”
- SEC Sues Coinbase on the basis of U.S. Securities Law Violations
- 10 US states take legal action against Coinbase for securities laws violations
- SEC files a motion to freeze all crypto held by the Binance via a temporary restraining order
- Washington DC district court issues a summons for Binance CEO Changpeng Zhao along with a pending lawsuit
- Court filings reveal that Gary Gensler applied to serve as an advisor for Binance in 2019 before becoming SEC Chair
- Robinhood moves to delist Cardano, Polygon, and Solana after the SEC deems them unregistered securities
- The Eurozone officially enters a recession
What a time to be alive…
Economic Calendar
Highlights
- CPI Inflation – Tuesday
- PPI Inflation – Wednesday
- FOMC Interest Rate Decision – Wednesday
- Retail Sales – Thursday
- Michigan Consumer Sentiment – Friday
Data Preview
CPI Inflation – Tuesday
CPI is expected to show an increase of 0.3% M/M in May, which is a little cooler than April’s 0.4%. The annual gauge is seen easing to 4.1% Y/Y from 4.9%. This would be the lowest since March 2021. Bank of America believes the decline in the headline number will be driven by a 3.0% easing in energy prices, along with seasonal factors. Core CPI is projected at 5.3% vs 5.5% prior.
PPI Inflation – Wednesday
Producer Price Inflation (inflation from the perspective of costs to industry or producers of products) is expected to continue its break-taking drop in both the core and headline aspects. Y/Y Core PPI for May is projected at 2.9% vs 3.2% prior, while headline is expected to hit 1.5% from 2.3% prior.
FOMC Interest Rate Decision – Wednesday
This has been one of the most contentious FOMC months, with expectations flip-flopping repeatedly over the past several weeks. We finally seem to have some consensus however, as a recent Reuters poll showed economists widely expect the Federal Reserve to hold rates at 5.00-5.25% this week. Only 8 of the 86 surveyed forecasted a 25bps rate rise.
As of today, Fed Funds are pricing in 70% chance of a hold at the June meeting, although this could once again revert toward 50/50 if CPI numbers come in hot on Tuesday. Do note this possibility as it could create a risk-off event.
Retail Sales – Thursday
Retail sales are expected to drop off to -0.1% in May from 0.4% in April. Further, there is a concern that tighter financial conditions, diminishing household savings, slower income growth, and the resumption of student loan debt service in Q3 will weigh on consumption growth over the coming months.
Retail Sales are a leading indicator with key information on consumer spending, which has a significant impact on the GDP. Consumers may be holding a US recession at bay, but for how much longer? We should be on the lookout for cracks in the edifice.
Michigan Consumer Sentiment – Friday
Michigan Consumer Sentiment measures the overall consumer mood, and particularly consumer attitudes on financial and income situations. This survey contains timely, up-to-date information collected right up until the official release.
MCS is forecast to tick up from 59.2 to 60 for the preliminary June reading. That’s quite historically low when we compare it to the 2015-2019 numbers.
Fed Rate Decisions and Bitcoin
I like looking at historical tendencies in terms of events. So as usual I logged into Seasonax to look at what BTC tends to do immediately following an FOMC rate decision day.
The results are interesting. Keep in mind this is agnostic to the eventuality of rate hike, cut or hold. Across timeframes, I see a tendency for BTC to increase somewhat and top out around three days following the second day of FOMC meetings. It then tends to dip til around day six before gradually ascending again.
Remember this occurs on average and is no indication of how BTC will behave from one meeting to another. Nonetheless worthy of keeping in your notepad!
CPI and Bitcoin
Since we’ve got CPI right before the FOMC this week, let’s take this a step further. I again compared multiple look-back periods and discovered a pattern where Bitcoin tends to dip or hold flat in the day following CPI and gradually ascend afterward.
For me, this simply confirms the apparent knee-jerk reaction we often feel around these data releases. Taking that longer-term tendency into account can help us place these economic releases in context with the broader spectrum of data.
And that’s all I have for today! Enjoy and have a great week!
Jay Charles
Editor in Chief, The Trading Tank.
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