September 14, 2022|Commentary

Commentary from the Desk: September 14, 2022


This week, we are closely following:

1. The Merge + CPI Print + FOMC Meeting = Volatility Galore


The Merge + CPI Print + FOMC Meeting = Volatility Galore

The moment we have all been waiting for (for a really long time): The Merge.

  • The Merge is set to occur this Thursday at approximately 4:04 UTC, but ETH is showing relative weakness leading up to the highly anticipated event.
  • ETH/BTC has been on a tear since the middle of July, especially as development supporting the merge began to come to fruition, mainly the testnet updates.
    • However, the ratio sharply fell from .085 to .075 going into this week
  • With the negative CPI print on Tuesday, the Merge on Thursday, and FOMC next week, traders and investors are expecting a lot of volatility.

A quick recap of this week’s CPI print:

  • The consumer price index increased 0.1% in August. Excluding food and energy, the inflation gauge rose 0.6%, both higher than expected and double July’s pace;
  • This so-called core CPI increased to 6.3% in August from a year earlier, up markedly from the 5.9% rate in both June and July—a signal that broad price pressures strengthened.
  • Costs were driven by increases in food, shelter and medical care services, offsetting a sharp decline in gasoline prices;
  • Real average hourly earnings adjusted for inflation rose 0.2% for the month. However, they remained down 2.8% from a year ago.

The market’s reactions have been less than enthusiastic:

  • Stocks posted their worst one-day performance since June 2020 as investors digested the latest inflation data and raised concerns about the Fed’s path ahead around interest-rate increases:
    • The Nasdaq composite led the declines, losing 5.2%.
  • The benchmark S&P 500 fell 4.3%, while the blue-chip Dow industrials lost 3.9%.
  • Treasury yields jumped: the two-year Treasury yield hit 3.754%, up from 3.571% at Monday's close and setting a new high since November 2007. The 10-year edged higher, to 3.422% from 3.361%.
    • Further, rates traders are now betting that the Fed will lift its benchmark rate by at least 75bps next week.
  • There is now increased expectations by investors that the central bank might ultimately push policy rates early in 2023 toward around 4.3%. However, this could also dampen economic activity in a way that forces re-easing policy before 2023 is out.
    • The CPI print comes on the tail of last week’s rate hike in Europe, where the European Central Bank’s 25-member governing council raised its key benchmarks by an unprecedented 0.75 of a percentage point to 1.25%.
  • Its benchmark is now 1.25% for lending to banks. The Fed’s main benchmark is 2.25% to 2.5% after several large rate rises, including two of three-quarters of a point. The Bank of England’s key benchmark is 1.75%.

From the crypto markets:

  • ETH fell as low as $1,550 post-CPI data, retracing ~12%
  • The Merge is next up on the list, and ETH Core developers are confident that it will go according to plan.
  • It’s an incredibly technical event, however, it’s occupying a lot of mindshare in not only crypto investors, but many TradFi investors as well.
  • It seems as if there is a significant cohort of investors waiting to see if The Merge goes well.


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