Market Pulse: CPI and Jobless Claims Surprise

This is a follow-up update, breaking down the price action post-inflation data release. Earlier today, we highlighted that in-line CPI would be risk-on. Core came in line, although Headline came in slightly higher.

• Core Inflation MoM: Consensus 0.3%, Actual 0.3%
• Core Inflation YoY: Consensus 3.1%, Actual 3.1%
• Inflation MoM: Consensus 0.3%, Actual 0.4%
• Inflation YoY: Consensus 2.8%, Actual 2.9%
• Jobless Claims: Consensus 235k, Actual 263k

We have added Jobless Claims, as it's important for today's price action, despite having previously not been important.

Thoughts On The Data:

The inflation data came out mostly in line with the forecasts, although we saw a slight uptick in the headline numbers. From this viewpoint, the data is fine, there's no upside surprise which is what markets would have been worried about, and it essentially allows the FED to cut at next week's Meeting and for them to forward guide more future cuts. So, from the inflation viewpoint, all is fine, and risk assets would have liked what they saw.

We then had Jobless Claims, which came in showing an upside surprise. Now, for context, this isn't something we've been watching closely recently. The reason is we do see upside surprises in this metric, but it's somewhat of a weak signal until we see a sharp uptrend. And for now, all we've seen recently are numbers that have come in flat and in line with expectations. However, this week, Jobless Claims spiked up, and as a result, we saw Bond Yields come down. This is the Bond market signalling that the labour market is weaker than first thought, and a larger-than-anticipated slowdown might be on the horizon.

But Jobless Claims have spiked on every holiday this year, and this print is from the Labour Day week, so of course, you're going to get more filings on a 4-day work week. Therefore, we're dismissing this print.

Price Action Upon The Data Release:

Initially, risk assets moved up quickly as market participants probably largely rejoiced in the inflation data. However, we saw them sell back down quite quickly alongside a drop in Yields.

It's our view that the first move (risk assets and Bond Yields both down) was the wrong move, and the market will look past this Jobless Claims data.

A few hours on, and BTC has recovered back to the mid $114k's, whilst the S&P is at new all-time highs, and the Nasdaq and Russell are both up on the day and squeezing into all-time highs.

What‘s Our Positioning From Here?

We remained positioned, and we'll continue to remain positioned as we expect the market to shake off the Jobless Claims numbers and then return to the narrative that the FED are likely to deliver 3 Interest Rate cuts between now and year-end in a 'Goldilocks' environment. This is a good setup for risk assets, and therefore, we're betting on higher in Majors and select memes (AURA).

An invalidation of this would be:

• Powell decides to deliver fewer cuts than what the market is expecting, although we see this as unlikely.
• The labour market data really starts to deteriorate, and the markets begin pricing more for recession, rather than this 'Goldilocks' environment.

Closing Thoughts:

We expect that FED Interest Rate cuts are on track going into year-end, whilst the 'Goldilocks' environment remains. BTC remains range-bound between $112k-$117k, although this may mean we continue to see others outperform over the near and medium-term. Our next focus is next week's FED Meeting and Powell's comments at the Press Conference.

BTC:

BTC pulled back initially, but it has since recovered, and it is up on the day, putting in new local highs. The key levels for price are the $117k resistance and then the $112k support, although this support is a zone that extends down to $108k.