Replays · US CPI · 14 Mar 2023, 12:30 UK

CPI in the week the banks wobbled

Most CPI reactions are about inflation. This one was mostly about banks. Silicon Valley Bank had failed four days earlier, and over the weekend the Fed and the Treasury had promised to protect its depositors. When February's inflation figures arrived at 12:30 UK on Tuesday, crypto traders were asking a different question: would the Fed keep raising rates into a banking scare?

The background

SVB collapsed on Friday 10 March. Circle, the issuer of the USDC stablecoin, had cash at the bank, and over the weekend USDC briefly traded well below a dollar. On Sunday evening regulators said all SVB depositors would be repaid and the Fed opened a new lending facility for banks. Bitcoin had already rallied on Monday from close to $20,000.

The inflation report itself was mixed. Headline prices rose 0.4% in February, down from 0.5%, and the annual rate eased to 6.0%. Core prices rose 0.5%, faster than the month before. In a normal month a firm core number would have worried crypto. In this week it barely registered.

First-hour change after the release. QQQ is measured from the 13:30 UK stock market open.

Five per cent in thirty minutes

1 12:30 UK: February CPI
2 13:05 UK: Bitcoin's high, around $26,500
3 13:30 UK: US stocks open higher

Bitcoin, five-minute candles, 30 minutes before to 3 hours after the release. % from the 12:30 UK price of $24,754. Source: Bitstamp.

The first five-minute candle added 1.9%, and the buying didn't stop. By 13:05 UK Bitcoin had touched about $26,500, more than 7% above the release price, before settling back to a +5.0% first hour. That puts this release #5 of 117 CPI reports by first-hour move against a normal hour, at 10.8 times.

The rally was broad. Litecoin and Solana both gained more than 6% in the hour, and every crypto market we track with active trading rose by at least 3%. Stocks rose too, but by far less: the Nasdaq-100 ETF added 0.8% in its first hour.

Bitcoin's first four hours after this release (amber) and after the January figures on 14 February 2023 (grey), when annual inflation was 6.4%.

A month earlier, with no bank crisis in the background, the January CPI report had pushed Bitcoin down about 1% in the first half hour before a rally in the second hour. The contrast shows how much the setting can matter. The March data was not dramatically different, but the market reading it was.

Seven days later

Bitcoin held most of its gain through the afternoon and finished the 24-hour window close to flat at +0.1%. Over the following week it rose 13.3%, as some investors moved money towards assets outside the banking system. The Fed raised rates by a quarter point on 22 March regardless.

All US CPI releases in our data, by Bitcoin's first-hour move against a normal hour.

Sources: release time and figures from the U.S. Bureau of Labor Statistics (public domain), first-print values via ALFRED, Federal Reserve Bank of St. Louis. Crypto: Bitstamp 5-minute candles; SPY/QQQ: IEX. No consensus forecasts are shown because they are proprietary; comparisons are with the previous release. “× normal hour” compares the first-hour move with the median move in matched quiet hours. How we measure it.