The Fed Is Not Talking About Cuts

Markets are not arguing about the size of a cut. They are arguing about whether the Fed hikes.

CME FedWatch has a 25 basis point increase at roughly 62%, up from 44% a month ago. Friday's print is the last inflation reading the committee sees before it votes on 16 September.

Expect the next 36 hours to be volatile.

The Split Matters, Not The Level

Headline CPI was 3.4% in July. Core was 2.5%. The gap is energy. Brent has held above $100 since the US and Iran conflict escalated in February, and petrol was up 24.6% year on year.

Core is behaving. Headline is not. That is a supply shock, and raising rates does not produce more oil.

Consensus for Friday is headline around 0.4% on the month, core around 0.2%. Watch core. If the jump is all petrol and groceries, the Fed has cover to hold. If core prints 0.3% or higher, the hawks get their evidence.

They are already close. July's hold at 3.50% to 3.75% passed nine votes to three, with Hammack, Kashkari and Logan all wanting an immediate increase. Warsh then used Jackson Hole to say the better summer readings had not convinced him underlying trends had improved. A strong August jobs report removed the last argument for patience.

What This Means For Bitcoin

The lazy version of this note says inflation is high, gold is the hedge, Bitcoin is just a risk asset. The tape does not support it.

Year to date Bitcoin is down around 10%. Gold is up less than 2%. Gold was up 30% by late January and has handed most of it back, trading near $4,400 against a $5,597 peak. Bitcoin bottomed at $57,800 in July, found its bid through August and is up close to 40% from the low.

The two assets are running in opposite directions, and the turn came as the Fed went hawkish. Gold peaked into it. Bitcoin bottomed through it.

That is worth sitting with. Gold's rally was a real yield trade, and hawkish repricing is exactly what takes the air out of it. Bitcoin's low was a capitulation event, forced sellers and miner supply clearing out, and that resolves on its own clock regardless of what the Fed does next.

The Hike Is Priced. A Cycle Is Not.

At 62%, one increase is largely in the market. Three is not. If Friday disappoints, the path runs September, October and December, and nobody holding a spot ETF has traded a tightening regime.

Bitcoin has repaired itself. It has not yet been tested against a Fed that is actually raising. The dot plot and the press conference will tell us more than the decision.

None of this is a reason to sit on your hands. The case for exposure does not rest on Friday's number. It rests on a market that has already cleared its forced sellers and spent August building a base, and that work is done whether the print runs hot or cold.

If a hot print drags the tape lower, it drags it into better structure than June offered. We would rather be accumulating into that than waiting on a green light that rarely arrives at a comfortable price.

The risk to the view is a genuine tightening cycle rather than a single hike. That is what the dot plot is for.

Stormrake Spotlight: Pax Gold (PAXG) ($4,396)

PAX Gold daily chart at $4,396, holding the must-hold level at $4,329 beneath the key zone at $4,463 to $4,600

Source: https://www.tradingview.com/x/kDrStzKn/

PAXG has held the must hold level once more and bounced around 1% from that level identified previously. We can expect that level of $4,329 to be the support, whilst the blue zone at $4,463 is the immediate resistance. With volatility ahead, we can expect either one of these levels breaking...

BTC/USD Key Levels and Price Action:

Bitcoin hourly chart at $78,282 after a volatile session, still inside the consolidation range beneath the $80,600 resistance

Source: https://www.tradingview.com/x/IhxmV31J/

Bitcoin had a volatile 24 hours, nearly reaching $80k and is now back near $78k. This is just a preview of the volatility to come over the next 36 hours. However, despite the intraday moves, BTC still remains within the consolidation range it has held for much of the last few weeks...

All prices are denominated in USD unless stated otherwise

Written by Alexandar Artis

Create a brokerage account today

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

Disclaimer

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.