Last week the crypto market resumed its long-term downtrend after the inflation figures for August in the United States came in much hotter than expected although the headline ie main CPI was lower than the previous month, the core CPI was actually higher.
Federal reserve chairman Jerome Powell’s said the FED will continue to raise interest rates until it sees more signs that inflation is easing.
Now there were hopes that the August CPI print would be another sign of declining inflation but alas investors are now anxiously awaiting the FED’s next press conference which is scheduled for this Wednesday.
Note that this will be the first time the FED has met since before the summer break and it looks like the FED could respond to the August CPI print with a larger than expected rate hike.
Of course you know how much this could impact the crypto market in percentage terms.
Now another macro factor that seems to have affected the crypto market is the news that the pandemic is coming to a close according to the world health organization.
The end of the pandemic is in sight and according to Axios concerns about the pandemic are at their lowest point yet.
Now in theory this should be very bullish for markets because it means that any remaining pandemic-related issues that are driving up inflation could soon subside.
That being said there are growing concerns that rising energy costs could keep inflation high in the United States and elsewhere as winter approaches.
Besides the increased demand for energy for heating there are three other factors to keep in mind going forward.
The first is that if the pandemic is indeed coming to a close then it means the ongoing lockdowns in China could likewise come to an end.
In a recent episode of block works macro analyst Andrew Simon explained that the end of lockdowns in China would create a surge in demand for energy from the restart of manufacturing.
This ties into the second factor and that’s that the United States has been gradually emptying its strategic oil reserves to reduce inflation at the pump.
It’s estimated that these oil reserves will run out sometime in early November which is coincidentally just before the midterm elections coincidentally being the key word.
According to Bloomberg the current administration is looking to begin refilling the US’s strategic oil reserves before they run out the thing.
Is that they’re reportedly planning on beginning their oil purchases when the price hits 80 dollars a barrel effectively setting a very high price floor for oil in the country.
Now the third factor to keep in mind is one I mentioned last week and that’s that G7 countries are planning on imposing a global price cap on Russian oil come early December the Kremlin has responded by saying that it will effectively cut all exports of all kinds to the West if this price cap is applied.
Meanwhile the US treasury department has threatened to sanction any country that makes quote “significant purchases of oil above the price cap”.
This is probably why treasury secretary Janet Yellen recently predicted that oil prices will rise in the winter.
She knows the price cap will have this effect.
So what this means is that inflation is likely to surge over the winter and this will force central banks around the world to continue raising interest rates aggressively to bring demand back in line with supply as Jerome recently said.
Seems he doesn’t know that demand for heat in winter isn’t elastic.