U.S. Inflation Was Negative in June; Bitcoin Jumps Above $59K

Market participants became increasingly convinced that the Fed was going to trim rates at its September meeting following the report.

Inflation continued to retreat in June, according to the government’s Consumer Price Index (CPI) report on Thursday morning, with the June rate coming in at a negative 0.1% pace against forecasts for a gain of 0.1% and May’s 0.0% read.

On a year-over-year basis, the CPI was higher by 3.0% versus expectations for 3.1% and 3.3% in May.

Core CPI – which strips out food and energy costs – also was better than hoped, rising 0.1% in June versus expectations for 0.2% and May’s 0.2%. Core CPI year-over-year was up 3.3% versus forecasts for 3.4% and June’s 3.4%.

The price of bitcoin (BTC) jumped to $59,100 in the minutes following the report, higher by nearly 2% over the past 24 hours.

A check of traditional markets finds U.S. stock index futures on the rise, with the 10-year Treasury yield sliding nine basis points to 4.20%. The price of gold is higher by 1% to $2,404 per ounce.

Ahead of Thursday morning’s report, market participants were increasingly coming around to the idea that the U.S. Federal Reserve was going to finally trim its benchmark fed funds rate at its mid-September meeting. The CME FedWatch tool put the odds of this happening at more than 70% versus less than 50% just one month ago. It was a notion that Fed Chair Jerome Powell took pains to neither confirm nor deny in two days of Congressional testimony earlier this week.

At that testimony, Powell did acknowledge a weakening labor market and that the Fed is becoming increasingly focused on downside risks to the economy. However, he reiterated – as he and other Fed members have done for weeks, if not months – that the central bank wants continued confirmation that inflation is returning to its 2% target before rate cuts can be truly considered.

In search of a catalyst

Bitcoin has been under considerable pressure over the past weeks since zooming to an all-time high above $73,500 late in the first quarter. The second quarter saw a slowing of inflows and even on occasion sizable net outflows into the U.S.-based spot ETFs. Then in late June into early July, a flood of supply from the sale of government holdings and the return of Mt. Gox tokens sent the price crashing to below $54,000 at one point, nearly 27% below that record high.

The tumble in bitcoin might be even more frustrating to the bulls given other competing risk assets – namely U.S. stocks – have continued to surge higher throughout the summer. Just yesterday, the S&P 500 and Nasdaq completed their seventh consecutive day of advance, scoring new record highs for each index.

Shortly following these latest inflation figures the odds for a September rate cut rose to 87% and the chances for two or more rate cuts by the Fed’s November meeting jumped to nearly 50%. Alongside, the U.S. dollar index has slumped nearly 1%, a very sizable move for that gauge. Whether this becomes the catalyst for a fresh run higher for bitcoin remains to be seen.

BY: Stephen Alpher

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