A busy data week delivered stronger growth with inflation plateauing. PCE came in below expectations on both the monthly and annual measures, core PCE at 0.2 percent against 0.3 expected, and GDP printed strong at 2.2 percent against 1.5 expected. Friday’s payrolls looked weak at 29,000 against 90,000 expected, and ten year yields fell from 5.30 to 5.16 with Bitcoin rallying to 87,400. Then the detail landed: the birth death model removed about 100,000 jobs and break even job growth at 4.1 percent unemployment is only around 40,000 a month, so this was not a big miss. Yields reversed all the way back to 5.27. What we find notable is that both stocks and Bitcoin are trading well anyway. Yields are rising on fiscal concerns rather than inflation, and a loss of confidence in government borrowing is the original thesis of Bitcoin.
Wednesday: A Goldilocks Data Day
PCE came in at 0.3 percent month on month against 0.4 percent expected and 0.1 percent last, with the year on year number at 3.4 percent against 3.7 percent expected and 3.4 percent last. Core PCE also came in lower at 0.2 percent against 0.3 percent expected and 0.1 percent last. GDP printed the same day and came out on the strong side at 2.2 percent against 1.5 percent expected and 2.5 percent last, quarter on quarter.
That combination made it a genuine Goldilocks data day: stronger growth alongside plateauing inflation, if not yet falling inflation. Thursday’s ISM manufacturing came pretty much in line at 54.5 against 55 expected and 54.6 last, and was not a market mover.
| Indicator | Actual | Expected | Last |
|---|---|---|---|
| PCE (MoM) | 0.3% | 0.4% | 0.1% |
| PCE (YoY) | 3.4% | 3.7% | 3.4% |
| Core PCE (MoM) | 0.2% | 0.3% | 0.1% |
| GDP (QoQ) | 2.2% | 1.5% | 2.5% |
| ISM manufacturing | 54.5 | 55.0 | 54.6 |
Payrolls: A Weak Headline That Did Not Survive Inspection
Friday was the big one. Non farm payrolls came in weak at 29,000 against 90,000 expected and 133,000 last. Average hourly earnings came out at 3 percent against 3.2 percent expected and 3.1 percent last, and the unemployment rate nudged up from 4.1 to 4.2 percent.
The initial reaction was as you would expect on a weak print. Ten year yields fell from 5.30 to 5.16 percent, a reasonably strong move, and Bitcoin rallied from 83,900 to 87,400, testing the topside of the consolidation range. Then came a typical Friday afternoon reversal once people looked into the details, which were not nearly so weak. The birth death model removed about 100,000 jobs, which accounted for most of the weakness, and break even job growth at 4.1 percent unemployment is only around 40,000 a month, so this was not a big miss. The higher unemployment rate was primarily due to a rise in the participation rate. As the market digested that, a Friday afternoon stop loss reversal took ten years all the way back to 5.27 percent, and Bitcoin closed the week at 84,500, right back in the middle of its congestion zone.
| Payrolls detail | Figure |
|---|---|
| Headline non farm payrolls | 29,000 vs 90,000 expected, 133,000 last |
| Average hourly earnings | 3.0% vs 3.2% expected, 3.1% last |
| Unemployment rate | 4.2%, up from 4.1% |
| Birth death model | Removed about 100,000 jobs |
| Break even job growth | ~40,000 a month at 4.1% unemployment |
| Driver of higher unemployment | Rise in participation rate |
Why Risk Assets Are Shrugging Off the Long End
Over the weekend Bitcoin was a little better bid, dips continue to be bought, and it is back above 86,000. The expectation is that the 87,400 topside level gets tested again this week, and that is the level to break for the next leg.
What stands out is that both stocks and Bitcoin are trading pretty well despite the ten year yield having really broken higher and continuing to trade bid. Stocks appear to be driven primarily by the AI boom: with the upside from AGI and effectively infinite productivity so large, funding it at 4.5 or 5.5 percent is not a decisive difference, so the AI sector and the growth expectations attached to it are somewhat immune to higher yields.
For Bitcoin the logic is different. Yields are going higher on fiscal concerns rather than inflation, and a loss of confidence in government borrowing is the original thesis of Bitcoin. On that reading Bitcoin continues to trade well as the alternative safe haven away from bonds. Jesse adds a further possibility: Bitcoin may be smelling potential future intervention, as with the Bessent action last time. More action from the Treasury, action from the central bank, or a geopolitical resolution to end the war given the pressure on US borrowing costs would all be bullish for bitcoin.
Yields are going higher on fiscal concerns rather than inflation currently, and loss of confidence in government borrowing is the original thesis of Bitcoin. So Bitcoin continues to trade well as the alternative safe haven asset away from bonds.
Technicals: 87,400 Is Still the Level
The technicals are much the same as last week. 87,400 is the important topside level and the top of the consolidation range. 82,700 sits on the downside, and a break of that would probably take the market to 77,000, which is the big support. A topside breakout would target the 94,000 to 98,000 area.
| BTC level | Significance |
|---|---|
| 94,000 to 98,000 | Target on a topside breakout |
| 87,400 | Top of the consolidation range; the level to break |
| 86,000 | Trading above this over the weekend |
| 82,700 | Downside level |
| 77,000 | Big support if 82,700 gives way |
ETF Flows: Momentum Continues at a Slower Pace
After the massive 2.4 billion dollars of inflows the previous week, the positive momentum continued but at a lower rate, with 240 million dollars of inflows. That takes total ETF assets to 109 billion dollars.
Options: The Market Starts Pricing a Topside Break
DVol is still depressed at 36.5. Five delta calls are at 44 percent and five delta puts at 42 percent, so the market is starting to price in a Bitcoin topside breakout, which is certainly how it has been trading with pretty much all dips bought back up. Implied volatility is back above realised with a 3.5 point spread, so there is better value in selling options currently.
| Volatility measure | Level | Note |
|---|---|---|
| DVol | 36.5 | Still depressed |
| 5 delta calls | 44% | Above puts |
| 5 delta puts | 42% | Skew now favours calls |
| Implied vs realised | +3.5 points | Back above; better value in selling |
Liquidity: Constrained by the Treasury Market
Hilbert’s global liquidity index is at 3.52, indicating constrained liquidity, primarily due to Treasury yields and Treasury volatility. The six factor Z score is at negative 1.26, up marginally on the week but still indicative of moderate liquidity and nothing market moving.
This Week and DeFi
A lighter week for data. ISM services PMI comes today, FOMC minutes on Wednesday, and Michigan consumer sentiment on Friday. In DeFi, USDe yields are at 4.96 percent with supply at 4.9 billion dollars.
