The Truth About CPI… Chances Are The Fed Will Be Too Heavy-handed

Market situation

A lot of bad news affected so despite opening slightly up, the US stock market still dropped in all three indexes at the end. Stock futures are also trending down. Oil and gold did not change much in price compared to the previous session and were at 85 USD/barrel and 1630 USD/ounce, respectively.

Bitcoin fell slightly to $19,000. Most altcoins also fell.

British Prime Minister Liz Truss recently resigned after a failed budget cut that rocked financial markets and led to an uprising within her own Conservative Party. Liz Truss took power for just 44 days, making her the shortest prime minister in British history. For 10 days, government business with her as prime minister was halted after the death of Queen Elizabeth II.

Currently, the opposition Labor parties, the Scottish National Party and the Liberal Democrats have called for an immediate general election. Ms. Liz Truss defeated Rishi Sunak to become leader of the Conservative Party after Boris Johnson resigned on July 7. So Mr. Sunak is now one of the favorite candidates to succeed after Boris Johnson’s resignation. Mrs. Truss resigned. Other candidates mentioned include finance minister Jeremy Hunt, another leadership candidate Penny Mordaunt, Defense Secretary Ben Wallace and former Prime Minister Boris Johnson.

This event also affects the British pound. The British pound remains very low against the dollar. The USD DXY index also rose after a few days of correction.

Not only the UK, the Japanese yen has also weakened below 150 against the USD. This is an important psychological level not seen since August 1990. Two-day meeting of the Bank of Japan is scheduled for next week. Policymakers ruled out a rate hike to protect from further weakness in the currency.

Or Turkey’s central bank cut interest rates for the third month in a row, the biggest drop this year. Despite the fact that the country saw inflation reach a staggering 83.45% in the official statistics in September, making it difficult for people to buy essentials.

Interest rates seem to be one of the ways central banks are trying to control inflation. However, it is not always effective. The increase in interest rates is to control demand. The increase in interest rates reduces people’s demand for money. However, national central banks or even the Fed do not control the supply. If demand decreases and supply also decreases, inflation will not change. Therefore, the fact that the Fed continues to raise interest rates sharply makes investors worry that it is not effective, but it may also lead the US into a recession.

Facts about Core CPI

The real estate market seems to change more slowly when the Fed raises interest rates. But it has also shown signs of slowing down. According to the National Association of Realtors, sales of previously owned homes fell 1.5% in September compared with August.

Significantly higher mortgage rates are causing an abrupt slowdown in the housing market. The average interest rate on a 30-year fixed-rate home loan is currently 7%. Although it has slowed down, house prices have not fallen significantly. House prices decreased slightly from a month ago but increased compared to the same period last year. In some places, tight supply continues to put pressure on house prices. The median price of an existing home sold in September was $384,800, up 8.4% from September 2021. Prices increased at all price points. This makes 127 consecutive months of annual increases.

Total CPI in September decreased, but Core CPI excluding energy and food increased. Core CPI increased because the cost of housing for Americans, which account for 42% of the weight of this index, has not decreased.

At the same time, the data collection to calculate the CPI also has a delay of about 6 months to 1 year, so the CPI is considered inaccurate and lagged. The rent rate is surveyed by the Ministry of Labor on an average of 50,000 people and carried out every 6 months. The rent information has also changed because the actual market price has changed from the tenant’s original contract price.

Another home price statistic that is said to be more accurate than the labor department’s is the Zillow Home Value Index (ZHVI). House prices according to this index have been on a downward trend but the labor ministry data is still in an uptrend. Therefore, if the Fed relies on the Core CPI to make decisions, interest rates may be excessively raised. At some point, house prices really seep in and are properly reflected on the Core CPI. At that time, the Fed may change its decision to raise interest rates earlier, but it will still have to go through the middle of next year.

The Fed’s continued aggressive interest rate hikes also prompted many investors and companies to speak out about the risk of a financial recession. Investors’ fear is also reflected in the price of US public bonds. Yields on 10-year Treasuries rose to 4.23%, at one point touching 4.239%. This is the highest yield since 2008. The yield on the policy sensitive 2-year Treasury note rose to 4,608%.

In the first half of the year to date, yield curve inversions have occurred several times, and continue to occur. Usually when this phenomenon occurs, then there will be a financial recession, so investors are more afraid. Regardless of the market, Thuan still adheres to the division of his portfolio and long-term price averaging. Thuan continues to average BTC and stock prices. Therefore, the more we see the importance of having a reasonable investment strategy with the position and needs, as well as the principle of implementing our plan.

Whales are accumulating BTC

The market falls and goes into winter when short-term investors get bored and leave. In contrast, on-chain data shows whales are accumulating BTC despite the gloomy market.

According to Santiment, the number of wallets storing between 10 BTC and 100 BTC is at its highest level since February 2021. This is a sign that the big whales are accumulating BTC. The number of wallets with 0.1 BTC to 10 BTC also reached an all-time high and accounted for 15.9% of all BTC wallets.

However, the number of 100 BTC to 10,000 BTC private wallets is at a three-month low. This decrease in the number of wallets can come from exchange wallets reducing the amount of BTC withdrawn by investors from the exchange.

On the other hand, Ethereum has a low number of regular active wallets after The Merge event took place. Although the number of active wallets regularly decreases, the number of Ethereum whale addresses holding 1 million USD ETH since November-September until now.

Cardano also shows signs of increasing interest in using NFT on the network. More NFT contracts are being used on the Cardano network. According to Stocktwits, Cardano is the third largest network after Ethereum and Solana in terms of NFT transaction volume. Cardano’s network has become more attractive in terms of NFTs, but DeFi has not changed and remains low compared to other networks.

Other information:

• European Digital Bank N26 announced on Thursday that it will launch a cryptocurrency trading service. N26 Crypto will allow users to buy and sell 100 tokens including Bitcoin and Ethereum. The feature first launched in Austria, and the N26 plans to expand it to other markets over the next six months. An N26 executive said interest in cryptocurrencies remains super high, even in a bear market.

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  Brazilian digital banking startup Nubank will launch its own cryptocurrency in the country next year, marking the latest move to digital assets by a major financial institution. Nubank said that it will launch Nucoin tokens in the first half of 2023. The bank also plans to reduce prices and other perks for their token holders. In the immediate future, Nubank will invite 2,000 customers to join a forum group to guide Nucoin development.

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