U.S. inflation for the month of September was up 8.2% year-over-year (YoY), which exceeded market expectations of 8.1%, per the consumer price index (CPI) report. Bitcoin fell close to $18,000 following the data release.
While the latest CPI report shows the fourth month of declining inflation, it is still notable that CPI continues to exceed market expectations. Thus, continued rate hikes could come from the Federal Reserve which tends to drive instruments like risk assets and bitcoin to lower prices.
The highest levels of inflation continued to be reported in the energy sector. For instance, fuel oil saw a 58.1% YoY jump and utility piped services hit 33.1%. Energy commodities also were up 19.7%, while energy services saw a 19.8% increase.
However, core CPI, which is CPI minus food and energy, hit 6.6% YoY –– a new 40-year high. Wages have also seen consistent declines over the past 18-month period which continues to show an economy in struggle.
From a month-over-month perspective, utility piped services rose 2.9% with the largest decrease being fuel and oil at 2.9%.
As inflation continues to decrease in certain sectors and wages seem to have no positive change, bitcoin’s price could possibly see lower prices as rate hikes take hold and borrowing becomes more difficult.
Continued tightening of monetary policy is making change, however the changes arguably are not as drastic as the Federal Reserve needs in order to curb the problem of broader economic constraints. Amid the current economic climate, bitcoin could continue experience further downtrends.
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Markets Prepare For CPI Surprise
The U.S. Producer Price Index (PPI) data was released on October 12, 2022, a day before the highly anticipated consumer price index release the following morning. In short, it’s not a good sign for those expecting a below-consensus CPI beat. Although headline PPI is coming down, the month-over-month (MoM) growth came in higher than expected at 0.4% (consensus: 0.2%) and the headline annual change came in at 8.5%. PPI has less of an impact on immediate market moves compared to the CPI as it doesn’t account for inflationary costs being passed on to the end consumer. Still, it’s an inflationary measure that gauges if businesses are facing accelerated prices and tends to move in the same direction as CPI.
CPI consensus is 0.2% MoM so an overshoot of even 10 basis points could send the market into another significant downwards move, killing any Federal Reserve pivot hope left.
Monthly percentage change in producer price index and consumer price index
Annual percentage change in producer price index and consumer price index
This is not the only sign in favor of a higher-than-consensus CPI print. Previously, we mentioned the Cleveland Fed Inflation Nowcasting data which projects a 0.32% headline CPI MoM change and 8.2% headline annual change. That said, 17 of the last 19 nowcasting forecast reports were actually under the CPI reading. Recently this tool has been closer than most consensus forecasts but consistently underestimates the actual CPI data. When the more conservative CPI forecasters are predicting a consensus beat, tread cautiously.
Although PPI data can give us an idea of the CPI direction, they don’t move the markets like CPI data has over the last year. A key metric to watch for what the market is thinking is the U.S. 2-year Treasury yield, currently just shy of 4.3%. As of today, the latest upward momentum is stalling and is on pause, which can signal that the market is not quite ready to buy the latest Fed comments on rate hikes to 4.5% until they see the CPI print.
2-year Treasury bond yields continue to rise
Where CPI lands relative to consensus is anyone’s guess, but the markets look to be waiting for their next direction until that data comes out. The main medium-term concern, beyond the data, is still that Core CPI will stay at a 5-6% annual growth rate for many months. As it lags heavily, rent inflation is a major component that will likely further increase before turning over. Medical care services is also a component that rose significantly in August and continues to do so as it’s more affected by stickier labor costs that are also rising. Despite oil’s rise over the past two weeks, energy may be less of a short-term factor in the September data as commodities continue to turn over. But the latest oil prices could easily come surging back amid OPEC production cuts and winter shortage demand approaching.
What Does It Mean For Bitcoin?
In our last piece, we emphasized the lack of historical volatility in the bitcoin price right now. This won’t last and the market is wound up for a fairly volatile move one way or the other. The CPI print could easily be that catalyst. If we’re to see a move to the upside, our framework is still that the move will be a temporary rally to blow out leveraged shorts, take liquidity and likely reverse back to the downside. A large CPI surprise could send the market on a trajectory to test a lot of liquidity and stop losses just below $18,000. That’s the surprise CPI bear case. Again, look to the equities market direction to determine the short-term trend.
With all of this said, the game is now patience. As monetary policies continue to prove ineffective and/or completely destructive, bitcoin will still be here. Many will realize it never “died” and it will have a place in the world beyond a high beta correlation.
The CPI-FUTE, the Parliamentary Commission that investigates cases of match-fixing in sports betting, met with government officials, including José Manssur, special advisor to the Brazilian Ministry of Finance, to discuss the regulation and taxation of sports betting.
In this meeting, Manssur announced that in the next few days, the Executive Branch will send a provisional measure and a bill to Congress with the purpose of regulating the activities of foreign sports betting sites operating in the country.
The bill includes the creation of a National Secretariat of Games and Lotteries, which will be in charge of regulating not only fixed odds betting (as is the case of sports websites) but the totality of games and lotteries of the federal government, as reported by the Chamber of Deputies News Agency.
“We are going to send [the proposals] to the CPI so that it can contribute from the conclusions that can be drawn here,” said Manssur, at the public hearing proposed by Congressman Aureo Ribeiro (Solidariedade-RJ) to discuss the legality, taxation, and regulation of sports betting.
He also said that the Executive should, through ordinances, establish specific rules for the issue investigated by the CPI: financial fraud involving gambling sites based abroad.
According to Mansur, the government should require that companies operating betting sites be headquartered in Brazil, have a minimum share capital, and employ a certain number of Brazilians. A subsidy amount will also be required for accreditation purposes.
Match manipulation
In response to Congressman Ribeiro, the representative of the executive affirmed that the manipulation of results in soccer matches will be tackled with the use of monitoring systems that will allow real-time control of the volume of bets received by all accredited operators in the country.
“A bet, for example, of BRL 1 million (more than $200,000) on a corner kick, will turn on a yellow signal within the Ministry of Finance and, based on the monitoring of the standard behavior of athletes, we will be able to determine that companies remove that game from the betting card,” Manssur explained.
According to the regulation, the amounts collected from betting must be allocated as follows: 0.82% for the education area, 2.55% for the National Public Safety Fund, 1.63% for clubs for transferring brands to betting websites, 10% for social security and 1% for the Ministry of Sports.
“Every day that Brazil does not regulate this matter, it loses BRL 10 million (more than $2 million),” the Ministry of Finance official emphasized.
Other issues addressed at the meeting were responsible gambling and compulsive gambling. “Gambling is not a way of life. The idea of social climbing through gambling is not a message that the government regards as correct”, added Manssur.
Valdemir de Sousa
For his part, Valdemir de Sousa, Deputy Director of the Conduct Supervision Department of the Central Bank of Brazil, stated that the payment flow of companies based abroad is carried out through foreign exchange operations.
“It is not up to us to deal with the regulation of betting, but it is up to us to deal with payment flows. This is regulated by Bacen and has its own code. From the Central Bank’s point of view, everything is perfectly within the exchange regulation,” he said.
However, he indicated that the bank had to monitor some movements made in betting after verifying an ” alarming” increase in the volume of funds moved: around BRL 8 billion ($1.647 billion) between January and June of this year.
Sousa also showed his support for regulation as a way to improve the control of suspicious operations. “I think we would benefit in two aspects: both in the improvement of inspection conditions and in the reduction of the risk of using games for money laundering and fraud, as well as in the improved treatment of clients,” he commented.
