Market Pulse: Markets Brace for Key Inflation Data, Volatility Looms

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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This Week’s Setup: Markets Eye Key Inflation Data?

Good afternoon all,

Last week, markets were jittery off the back of a weaker than expected jobs print, which also saw revisions pull prior months into negative territory (June’s print). This resulted in the market pricing in Interest Rate cuts at all the remaining Meetings this year (Sept, Oct and Dec).

However, risk assets did not know how to take it. Was it bullish because the FED are likely to deliver 3 Interest Rate cuts at consecutive Meetings? Or is a lot of consecutive cuts bearish as it indicates that the labour market is weakening far aggressively than the market first thought (potential sign of an incoming recession), and that the FED is 'behind the curve'? This would be bearish short-term (next 4-6 weeks), but it would provide us with a potentially great dip-buying opportunity.

This weeks' price action and reaction to the incoming data will be key for us in determining the above.

This Weeks' Data:

Tuesday: Non-Farm Payrolls Annual Revision – no forecast.

Wednesday: PPI MoM - forecast 0.6%

Thursday: Core Inflation MoM - forecast 0.3%

Thursday: Core Inflation YoY - forecast 3.1%

Thursday: Headline Inflation MoM - forecast 0.3%

Thursday: Headline Inflation YoY - forecast 2.9%

Scenario 1: the inflation data comes in inline or softer:

Our base case is for the data to come in inline. Should we see this or a softer print, this would settle markets, as it wouldn't complicate the argument for FED cuts (higher inflation would complicate the argument for cutting rates). Markets would likely be able to move higher upon this.

Scenario 2: the inflation data comes in hotter:

Not our base case, but markets would potentially shake it off should the data come in hotter as the FED and Powell himself have suggested that they should be looking through the inflationary effects of tariffs as they're likely to be transitory - yep we said it! However, if the numbers came in super-hot, the market would potentially sell down on this as it would suggest a stagflationary setup/outlook.

Why The Above Matters?

Markets are looking for FED cuts, and more importantly, the right kind of FED cuts - we'll explain this further in tomorrow's Market Update. But this week, Markets are looking for inflation to be contained rather than breaking out higher as this would have the FED's dual mandate in conflict.

Cryptonary's Take:

Our base case is for an uptick in the inflation numbers, but not a meaningful upside surprise. We would expect that the FED can then cut at next Wednesday's (17th) Meeting, and potentially forward guide to more cuts in October and December.

But we're also keeping a close eye on the Non-Farm Payrolls Annual Revision numbers that come out on Tuesday. Should they show a negative print, the market would begin to price in an even weaker labour market where the FED would have to cut rates to re-stimulate growth. Risk assets might not like this in the short-term, despite it meaning increased stimulus further down the road.

Therefore, our game plan is as follows:

- We keep a small allocation to cash (20%-30%) for dip buying Majors should we get meaningful pullbacks upon the market pricing in more negative data in the short-term.

- We continue to maintain our positioning in Majors as we believe there's another 12 months of this bull market.

- We continue to hold conviction bags taking a longer-term view - $HYPE and $AURA.

Dip Buying Zones:

BTC: $95k-$105k; although we're sceptical that $100k would be lost.

ETH: $3,600-$3,970; although we're sceptical that $3,600 can be tested.

SOL: $172-$185.

HYPE: $39.40 - $42.00.

AURA: $0.085-$0.096.