Commentary from the Desk: September 14, 2022

This week, we are closely following:

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

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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.

ICYMI