A quiet week on the data front carried three macro drivers that moved the September hike probability from 55 percent down to 40 and then back above 50. Renewed tension in Iran pushed Brent above 97 dollars and the market barely noticed. Christopher Waller was surprisingly dovish, saying he was seeing disinflation in core metrics and would hold off in September provided the August inflation print was not shocking, and Bitcoin rallied 6 percent from 77,700 to above 82,000. Friday’s payrolls came in far stronger at 162,000 against 56,000 expected, with average hourly earnings hot, and the move reversed. Bitcoin sits at 79,500 with the chart looking constructive. CPI on Friday is the print that decides the meeting, and Jesse’s read is that the meeting on the 16th will not cap Bitcoin’s upside in the medium term.
Iran: The Market Has Stopped Reacting
The first of the week’s three macro drivers was renewed tension in Iran, which Jesse conceded is getting a little boring to hear about. There were attacks on oil tankers and Brent crude spiked back above 97 dollars, but the market did not really react. Stocks are now clearly pretty immune to these escalations. The view is that until oil makes a move that breaks it out of its range, back to 120, there will be no reaction. While it hovers around 100, the market has been there and done that.
The S&P actually closed the week slightly up, gaining 0.7 percent to 7,700, and Bitcoin was unaffected by oil prices. Part of the dampening effect comes from Trump’s announcement of a 65 billion barrel agreement with Venezuela to replenish the strategic petroleum reserve. The market knows huge supply is coming down the line, so brief moves higher in spot oil are not going to be a major market mover.
Waller: Surprisingly Dovish Into a Market Leaning Hawkish
The second driver was a speech by Christopher Waller from the Fed board, who was surprisingly dovish going into a market already leaning towards a September hike. He said he was seeing disinflation in core metrics and that he was willing to hold off from a September hike, provided the August inflation print was not too hot. That put renewed focus on the print coming this week.
Jesse’s take: it is slightly questionable to base a 25 basis point hike decision on one data print, but that is where the market is. On the dovishness, the probability of a September hike fell from around 55 percent down to 40 percent. Bitcoin liked it and rallied about 6 percent on the announcement, moving from 77,700 back above 82,000 and retesting the August highs.
Payrolls: Much Stronger, and the Move Reversed
The third driver was Friday’s non farm payrolls, which came in much stronger than expected. The headline was 162,000 against 56,000 expected, and average hourly earnings came in at 3.1 percent against 3 percent expected. Unemployment held at 4.1 percent. A strong labour market with some sign of inflationary wage pressure reversed the rates move, and the probability of a September hike went back above 50 percent.
Bitcoin reversed some of its move and fell back towards 78,000, but is still trading pretty well. It drifted higher over the weekend and currently sits at 79,500. On the other data side of the week, ISM manufacturing came out a little on the weak side at 54.6 against 55.2 expected and 55.6 last, which was soft but not a big deal and not a market mover.
| Indicator | Actual | Expected | Verdict |
|---|---|---|---|
| Non farm payrolls | 162,000 | 56,000 | Much stronger |
| Average hourly earnings | 3.1% | 3.0% | Hot |
| Unemployment rate | 4.1% | Held | Unchanged |
| ISM manufacturing | 54.6 | 55.2 (55.6 last) | Slightly weak |
This Week: PPI Thursday, CPI Friday
Today is Labor Day in the US, so not much is expected. Two big prints follow. Thursday brings PPI and home sales, with PPI clearly the more significant of the two. Friday brings CPI, which is going to be the big market mover, with expectations at 3.4 percent and core at 2.4 percent.
That is the print that moves the September rate hike probabilities. With the meeting priced at around 50 percent, Jesse expects a large move either way unless the number comes bang in line. Anything else and those probabilities move quite a lot.
The Meeting on the 16Th: Priced Both Ways
The upcoming Fed meeting on the 16th is the next big catalyst for a move, but Jesse does not see it as a medium term driver of direction, because of where the pricing already sits. Either the Fed does not hike, in which case the market rallies, or the Fed hikes, but it is exceedingly unlikely that the hike would be announced as the start of a hiking cycle. It is most likely a one and done, and at worst a one and let us see whether one more is needed.
On that basis the outcome is generally going to be read as the bad news being in the price. The expected market reaction to a hike is a significant knee jerk lower in Bitcoin and risk assets as the not fully priced hike lands, and then it is out of the way. As long as fears of a hiking cycle do not follow, the bad news is in the price and that would mark a short term bottom to rally from. Until Friday’s CPI, the expectation is a range bound week.
Either the Fed don’t hike, in which case we rally, or the Fed do hike, but it’s exceedingly unlikely that the hike is going to be announced as the start of a hiking cycle. Most likely it’s a one and done.
Bitcoin Technicals: 75,000 Holds, 85,000 Is the Pivot
The charts look constructive. The notable support level comes in at 75,000 and looks like pretty strong support. Without a big macro driver Jesse would be very surprised to see it break imminently. A September hike might take price through it, but absent meaningful news before then the expectation is that the range holds.
On the topside sit the 82,000 local highs, which have been holding since August. Through there the next level is 85,000, described as the big macro pivot. Getting through 85,000 would put the market back in long term bull territory, at which point 100,000 and above becomes a conversation.
| BTC level | Significance |
|---|---|
| 100,000 | In play only once 85,000 clears |
| 85,000 | Big macro pivot; long term bull territory above |
| 82,000 | Local highs, holding since August |
| 79,500 | Spot at the time of the call |
| 75,000 | Strong support; unlikely to break without a macro driver |
ETF Flows: Three Weeks Positive, Assets Back Above 100 Billion
ETF flows were positive again, with 986 million dollars of inflows on the week. That makes three consecutive weeks of inflows. Total ETF assets are back above 100 billion dollars, the first time since May that the figure has been above that number.
Options: The Smile Has Gone Symmetrical
With the rally in Bitcoin, volatility is pretty suppressed. DVol is at 38, near the year to date lows. Call volatility is at 45 percent and put volatility is similar at 44 percent, so the smile is now much more symmetrical, which is what has been lacking for many months. The market is pricing significant risk of an upside move, something that had been fully priced out over the summer.
| Volatility measure | Level | Note |
|---|---|---|
| DVol | 38 | Near year to date lows |
| Call wing | 45% | – |
| Put wing | 44% | Broadly symmetrical with calls |
Liquidity: Bullish Factors, Flat Velocity
Hilbert’s global liquidity index is at 6.6. It would be higher, but it is still being dragged down by the ten year term premium. The other factors are all comfortably in bullish territory. The six factor Z score is minus 0.14, which implies that liquidity velocity is flat, so there is currently not much impetus either way from liquidity flows.
DeFi: USDe Yields Tick Up on New Revenue Streams
The USDe yield continues to tick up on the back of new Ethena revenue streams and diversified reserves, taking it to 4.6 percent. That is much better than the low threes seen over the last few months. TVL sits at 4.45 billion dollars.
