1 Minute Market Rundown – 10th August 2022

Markets Stand Still
US CPI in Focus
Tech Stocks Weigh on Risk
Crypto Gives Back Some Gains

It was another quiet 24 hours with the market eagerly awaiting today’s US CPI print. Risk was sold a little as people squared up ahead of today’s crucial print with tech stocks selling off the most.

The FED has abandoned forward guidance and said they are data dependent and in my opinion, today’s number is crucial in setting the tone for markets. The markets seem lost currently but I, along with all market participants, are hoping for some direction from today’s release.

So what are the potential scenarios? A weaker than expected number and I think risk will fly with equities and crypto leading the way. So much money is sitting on the sidelines and people are itching to deploy cash and this may give them the impetus to do it. Price action is such a crucial part of reading the markets and the fact risk markets couldn’t stay heavy after Friday’s NFP tells me the market is looking to buy risk and a lower than expected CPI print will embolden them. A print that is higher than expected and I expect risk to get hit. Looking at the yield curve, the spread between the 2 year and 10 year note is now around 50bps – this inversion is the deepest since 2000 and the inversion will only deepen on a higher than expected print. Talk will then shift to a potential 100bps hike in September especially with the labour market firing on all cylinders. Expect equities and crypto to get hit. An expected number is the hardest to call in my mind. My opinion is we may see the USD sell off a tad but I believe that move will be quickly reversed with the USD being bought and risk coming under pressure as front end yields move higher again.

I mentioned yesterday that I began to lighten up some ETH longs and I wanted to expand a little on that today. One reason was simply respecting resistance levels as we approached 1850 and another was I can’t call a low in place until I see inflation data tick lower. However, what is happening in the crypto options space is very interesting and another reason why I’m lightening longs and will continue to do so for the next month. For the first time, when looking at options open interest, ETH was higher than BTC. The reason for this is clear – the upcoming merge. Traders are long ETH calls in anticipation of the merge. I hate to be a downer but this screams to me of ‘buy the rumour, sell the fact.’ This is not to say I don’t believe ETH won’t trade higher over time but we are getting to the point where a successful merge is being priced in – just look at ETH’s dominance over the past few weeks. The actual interesting trade I am looking to scale into – barring rampant inflation – is scaling into a long BTC short ETH trade over the next few weeks and then looking to buy ETH on any sell-off post the merge.

On the day today ETH should find initial support at 1500/1550 with 1850 now the resistance it needs to get through. BTC should find initial support around 22000.

Good luck all.

Lux Thiagarajah – Head of Markets

1 Minute Market Rundown – 10th August 2022

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