One thing markets hate is surprises, and if this week doesn’t go according to plan, they could be in for a rude awakening.
Equity and crypto markets remained relatively tame Monday as traders awaited the latest Consumer Price Index reading and the Federal Reserve’s interest rate decision.
Bitcoin and ether inched into the green at the close Monday, rallying 0.2% and 0.3%, respectively. The S&P 500 and tech-heavy Nasdaq Composite indexes gained as well, ending Monday’s session 1.4% and 1.3% higher, respectively.
The stability is in part thanks to markets’ confidence in a 50 basis point rate hike from the Fed. There is a 74.7% chance of a half-percent increase, according to data from CME Group.
“There’s almost certain indication this week’s FOMC meeting will raise interest rates by 50 basis points instead of 75 basis points, which calms the market bears a bit,” Youwei Yang, chief economist at BTCM, said. “More importantly, we should pay closer attention to the final goal of the Fed.”
The Fed is currently on track to reach between 500 and 525 basis points in March or May 2023 and stop rate hikes, Yang said. An earlier stop would be bullish for markets, where a later stop or higher basis point goal could be bearish, she added. A soft landing at this point would be a surprise, other analysts said.
“To achieve a soft landing, the Fed needs to decorrelate job openings from unemployment. It needs to convince the healthiest firms to freeze hiring, without pushing the weakest firms to lay off workers,” Aneta Markowska, chief financial economist at Jefferies, said. “Companies will respond to the Fed’s tightening differently.”
In terms of inflation, a lower-than-expected year-over-year increase (analysts are currently calling for a 7.3% increase) would be good news for markets, but a higher number could send prices falling.
“A lower CPI number and lower final target of Fed interest rate will help a ‘Santa Rally’ after a year of downturn and especially to recover recent losses,” Yang said.
There is risk in priced-in certainty in markets though, Nicolas Colas, co-founder of DataTrek Research, said.
“Markets right now are priced as if they have all the answers about future Fed policy, its effect on the US/global economy, and 2023 — 2024 corporate earnings. And maybe they do,” Colas said. “All we know for sure is that every time this year markets have had this perspective, they have been wrong.”
CPI data is expected at 8:30 am ET on Tuesday morning. And for crypto market watchers, the Tuesday calendar also has a hotly anticipated appearance by both former FTX CEO Sam Bankman-Fried and current CEO John Ray in the House Financial Services Committee beginning at 10:00 am.
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Source: https://blockworks.co/news/crypto-markets-eye-key-events-this-week