The US Consumer Price Index (CPI) is expected out today, Wednesday July 13, and the market is highly watching the data release as a likely trigger of either fresh upside moves, or potential drawdowns ahead of a busy earnings season.
Ahead of the inflation data release, economist Alex Kruger commented on why he believes crypto might not see a similar crash as that which ensued after the last print.
In a Twitter thread early Wednesday, he said:
“My take on today’s highly anticipated CPI inflation data. The last CPI number triggered a massive crash, with the S&P falling 7% in 2 days. Meanwhile the ensuing crypto crash was so intense that CPI could be relabeled as the Crypto Pain Index. BTC and ETH dropped 30% and 40% respectively in 4 days, leaving many traumatized. This likely makes today’s CPI the most watched inflation number in history.”
Why crypto won’t crash after CPI data
Crypto, which sold-off massively after the last CPI, might also mirror trends in the equities market, but Kruger says digital assets might not see a bloodbath similar to what followed the last print.
“Such a crash is very unlikely to repeat itself for five reasons,” he tweeted.
1. CPI vs. consensus
The market expected hotter inflation data, but not as hot as it was reported. The reaction was on the downside.
“The crash was driven not only by a high print, but more importantly by a large beat of consensus: 1% mom vs 0.7% expected, 8.6% yoy vs 8.3% expected.”
2. Market sold-off ahead of CPI release
Economists expect headline CPI to be hotter for the month than what was released in June, but note that the market already priced in the event with a sell-off since Sunday. That’s the second reason why Kruger believes the crypto market won’t repeat last month’s downturn.
#2 the market is already expecting a very high print (higher than in June), and has already sold off considerably since Sunday in anticipation. https://t.co/6k7KNjfUsY
— Alex Kruger (@krugermacro) July 13, 2022
3. Inflation expected to cool amid falling gas prices
Inflation rose to a 40-year high year-over-year in May, with the hotter numbers shocking the market into a sell-off. While today’s print could surprise, economists expect a cool down in coming months, largely as a result of falling gas prices.
This factor was also highlighted by Brian Deese, the White House Director of National Economic Council, and the impact of a positive sentiment could cut across markets.
#3 inflation is expected to fall considerably from here, mainly due to falling gas prices.https://t.co/Jk56FK8TSY
— Alex Kruger (@krugermacro) July 13, 2022
4. Fed’s reaction curve
Kruger says,
“Today’s CPI is unlikely to change the Fed’s reaction curve, which is what truly matters. The Fed is seemingly set on a 75bp hike in July (fully priced in). July’s FOMC should be a minor event, with all eyes on September’s FOMC (no FOMC in August as boomers take a month off).”
5. Crypto already capitulated
The crypto market saw a $2 trillion market cap wipe out in June, with most assets losing as much as 80%, 90% of their values at bull market peak.
According to Kruger, the crypto sector “already capitulated” and any dips from after this CPI might not be as bloody as seen in May and June.
“I expect CPI higher than consensus, and the ensuing dip to be faded rather than start a new downtrend. On the other hand if inflation comes in line or lower (core CPI in particular) risk assets should rally.”
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