Markets in Waiting Mode — What Breaks the Stalemate?

Bitcoin and crypto markets broadly have continued to drift lower this week. We’ve seen stablecoin dominance rise another 3.8%, which can be interpreted as a market signal of investors and traders moving into fiat currency as a “flight to safety.”  

Today we’re going to spend some time on what is on the horizon to give the market its next piece of the puzzle.   

Inflation has been a re-emerging theme both locally and aboard, and the latest rounds of US data will land Friday at 11:30pm AEST.  

Let's dig in. 

Breaking down the steps ahead 

To frame it simply, the path for monetary policy, particularly interest rates, hinges on two key factors: inflation and jobs. This is what’s commonly referred to as a dual mandate, you’ll hear that term often if you’ve been following the news over the last few years. 

That’s the Fed’s job in a nutshell, balancing these two forces. 

So, when policymakers step up to a microphone they’re telling everyone how they see those two pieces of the puzzle right now. What’s improving, what’s still at risk, and what they think that means for the next move on rates.  

This week, US unemployment landed at 4.3%, slightly below the 4.4% forecast. On the surface, that’s a solid right? The labour market is still holding up. 

But for risk assets, like crypto, the relationship status suddenly becomes a little bit more complicated. 

Crypto assets have historically built their trends and performed best when the backdrop has been economic easing i.e. when policymakers have room to cut rates and liquidity can expand. 

So, the next piece of the dual-mandate puzzle is inflation. Not just what the data says, but what the market expects inflation to do as we head into the official print. Let’s think about this ultimately from the perspective of how investors and traders are behaving based on what we know now.  

Chart of the week: A look at Inflation expectations, why the calm matters 

This chart (RINF) is a simple proxy for market inflation expectations. The key story isn’t where it’s trading, it’s what’s happening underneath the surface.   

While inflation expectations have been largely rangebound since 2023, volatility has quietly collapsed, nearing the lows we last saw back in 2019. 

Now what’s important to state is that volatility doesn’t choose a direction, but it can create the environment where the next move is brewing.  

In other words, inflation expectations are signals the market has become too comfortable with the current narrative.  

So you can get an idea of why I believe the next rounds of inflation data will be important to track. We may maintain the status quo, but an unexpected outcome (either higher or lower) could trigger the start of something bigger.  

See you all again next time.