At 8:30 PM Beijing Time tonight, the U.S. August CPI data will be released.
Overall, the probability of the data being negative for financial markets is currently above 90%. The market is facing a potentially dangerous combination of Friday + bearish economic data + a high probability of further rate hikes, creating a triple-risk window that could trigger another “Black Friday.”
Yesterdays PPI report was, objectively speaking, not that bad. The overall data was bearish for markets, but only mildly so. Yet global markets still sold off across the board: U.S. stocks, crypto, A-shares, and the German, British, and French stock markets all declined.
Bitcoin plunged from $78,000 to $76,400, coming within striking distance of the previously mentioned $76,200 critical support level. This shows that market fear is already building. At this point, even the slightest piece of negative news can trigger another sell-off.
More importantly, after the release of the U.S. August PPI data, the CME-implied probability of a Fed rate hike jumped to 72.4%, surging by roughly 10 percentage points.
Historical data since 2015 shows that whenever the market-priced probability of a rate hike or cut has exceeded 69%, the Federal Reserve has ultimately delivered the corresponding rate move at its meetings.
And that is arguably the most frightening part for the market right now.
1. Baseline Assessment of the U.S. August CPI
The current market consensus expects:
- Headline CPI: +0.4% month-over-month, with the annual rate holding at 3.4%
- Core CPI: +0.2% month-over-month, with the annual rate slowing from 2.5% in July to 2.4%
Headline CPI is expected to accelerate sharply from +0.1% in July to +0.4% in August, mainly driven by energy prices.
U.S. crude oil has already broken above $100 per barrel, while the conflict involving Iran continues to escalate. There are currently few signs of a meaningful short-term decline in energy inflation.
This means that even if core CPI remains relatively moderate, a significant acceleration in headline CPI could be enough to keep the market's rate-hike fears alive.
Yesterday's PPI report had already provided a forward-looking signal:
- Headline PPI: +0.4% MoM, +5.4% YoY, above the 5.3% expectation
- Core PPI: +0.2% MoM, below the 0.3% expectation
This combination of “hot headline inflation + relatively moderate core inflation” is precisely what makes the situation so delicate.
Core inflation itself is not particularly alarming, but the transmission of higher energy prices into broader inflation is already becoming visible. That may be enough to push market pricing further toward a rate-hike scenario.
Overall, tonight's CPI is unlikely to come in significantly below expectations. The probability of a “bearish news confirmation” scenario is therefore estimated at more than 90%.
Most likely scenario: Probability >60%
The most likely outcome is that headline CPI comes in around expectations at +0.4%, while core CPI meets or slightly exceeds expectations at +0.2%–0.3%.
The probability of a Fed rate hike remains above 70% and could rise slightly.
The market may “sell first”, but the decline should remain relatively contained, followed by a period of volatility as investors wait for the FOMC meeting.
Second-most likely scenario: Probability ~30%
Headline CPI exceeds expectations at +0.5% or higher, or core CPI reaches +0.3% MoM.
The implied rate-hike probability could surge above 80%, while U.S. Treasury yields and the U.S. dollar rise simultaneously.
Risk assets would come under significantly greater pressure, potentially triggering a synchronized sell-off across global markets.
Least likely scenario
Core CPI comes in significantly below expectations at +0.1% MoM.
This is the only scenario that could meaningfully reverse the current rate-hike narrative.
Markets could stage a sharp rebound if this happens. However, given the continued rise in energy prices, the probability of a significant downside surprise in core CPI appears relatively low.
2. Impact on Different Financial Assets
U.S. Stocks:
Futures positioning remains net long, but overall exposure has declined, while short positions are returning. Combined with the historically weak September seasonality and the pressure of a midterm-election year, the market remains vulnerable.
CPI in line with or slightly above expectations: The S&P 500 comes under pressure, with high-valuation technology stocks facing the greatest discount-rate pressure. Capital may rotate toward energy and financials. A correction of around 3–5% is possible, potentially expanding to 5–8% if a rate hike is ultimately delivered.
CPI significantly above expectations: Treasury yields surge, leading to an even sharper compression in technology-stock valuations.
CPI below expectations (low probability): The rate-hike narrative weakens, triggering short covering and a rebound.
Bitcoin and the Crypto Market:
The crypto market is currently at an extremely fragile point in the battle between bulls and bears.
Over the past 24 hours, approximately $1.68 billion in crypto positions have been liquidated, with long positions accounting for around 73%. However, the long/short ratio has not declined. Instead, it has risen from 1.05 a week ago to 1.33.
This means that liquidated long positions are quickly being replaced by new leveraged positions. Bulls have not truly surrendered.
This kind of “the more liquidations, the more leverage comes back in” structure often indicates that the liquidation cycle is not yet over.
$76,200 is the critical line in the sand, while the 50-day EMA stands at $78,311. The golden cross, with the 50-day moving average above the 200-day moving average, may struggle to withstand the pressure from a rate-hike narrative.
ETF divergence: BTC ETFs have experienced consecutive outflows, including approximately $120 million in a single day, while ETH ETFs saw around $34.75 million in inflows. Smart money appears to be rotating toward ETH and relatively safer assets.
CPI in line with or slightly above expectations: BTC could initially be pushed higher toward $79,000–$80,000, only to reverse and retest $76,200. If that level breaks, $74,000 becomes the next target, implying a potential 4–7% downside.
CPI significantly above expectations: $76,200 could break immediately, triggering another wave of cascading long liquidations.
Whales' unrealized profits have already reached approximately $9.07 billion, a new all-time high. They could choose to realize those profits at any time, potentially amplifying downside pressure.
CPI below expectations: Bitcoin could rebound above $80,000, but traders should remain alert to the possibility of a second retest of the lows.
Overall: Unless CPI comes in significantly below expectations, the result is likely to be bearish for risk assets. The combination of Friday + a weekend liquidity vacuum + next Thursday's FOMC meeting could amplify volatility significantly.
The two key indicators to watch are Bitcoin's $76,200 level and the depth of any S&P 500 correction.
3. Trading Strategy Reference
The core market conflict right now is not whether CPI is objectively good or bad, but rather:
Is the CPI data strong enough to change the rate-hike narrative？
With the rate-hike probability already around 70%, and historical data showing that the Fed has delivered the corresponding rate move whenever market pricing exceeded 69%, the threshold for CPI to overturn the current rate-hike pricing is extremely high.
Therefore, the overall strategy should be to control position sizes and avoid immediately chasing either a short position or a bottom after the data release.
Traders should also be alert to a potential “pump first, dump later” pattern.
Although large numbers of BTC and ETH longs have already been liquidated, the market could still stage a short-term rebound before the CPI release to attract fresh long positions, only to trigger a second round of liquidations once the data is released.
$76,200 is the key level to watch.
If BTC holds this level after the CPI release while open interest declines, it would suggest that leverage has been flushed out in a relatively healthy manner, potentially creating room for a short-term rebound.
If BTC breaks below $76,200 while open interest does not decline at the same time, it would suggest that the risk has not yet been fully released.
This week's macro calendar is extremely crowded:
Tonight: CPI → Next Thursday (September 16): Fed rate decision → September 30: PCE data
These three events create a highly concentrated risk window. A significant surprise at any one of these stages could trigger a chain reaction across global markets.
4. The Biggest Risk: How Likely Is a “Black Friday”？
This CPI release is scheduled for Friday.
Historically, when bearish economic data is released on a Friday, the market can experience particularly violent volatility because of the natural risk-off behavior associated with the weekend information vacuum. There have also been numerous historical examples of “Black Fridays.”
A particularly relevant example occurred on June 10, 2022, when the U.S. May CPI unexpectedly surged to 8.6%, versus expectations of 8.2%, reaching a 40-year high.
Global markets sold off simultaneously.
The S&P 500 fell 2.91% that day. Bitcoin, as a risk asset, suffered an even larger decline, dropping approximately 4%, while Ethereum fell around 6%.
But the real collapse came afterward:
The “Black Monday”
The sell-off on Friday, June 10 was only the beginning.
On the following Monday, June 13, Bitcoin suffered its largest single-day decline since March 2020, plunging approximately 16% to $21,910.
From the CPI release on June 10 through June 13, Bitcoin's cumulative three-day decline exceeded 20%, significantly outpacing the three major U.S. stock indexes.
The June 2022 episode reveals an important pattern:
When bearish CPI data is released on Friday, real damage may not occur at the moment the data is released. Instead, the weekend liquidity vacuum and concentrated selling pressure on the next trading day can unleash the full impact.
Bitcoin fell “only” 4% on June 10, but the subsequent liquidity drain over the weekend and the additional sell-off on June 13 became the real nightmare for bulls.
That structure bears a strong resemblance to today's setup:
Friday CPI + weekend liquidity vacuum + next Thursday's FOMC
This deserves close attention.
From the perspective of the crypto market itself, the rally that began last month has lasted nearly a month. However, Bitcoin actually moved sharply higher within just three days.
From a market-maker's perspective, this kind of short-term surge during a bear market has an obvious advantage: it can quickly attract retail investors into the market.
But there is also a downside: market makers cannot easily distribute their positions while aggressively pushing prices higher.
As a result, the market enters a high-level consolidation phase before distribution.
More than 20 days have now passed, which may indicate that a substantial portion of the distribution process has already taken place.
At the same time, the market rotation appears to have largely completed its cycle:
Bitcoin → major altcoins → smaller altcoins → meme coins
The explosive rise of PONS, the meme-coin launchpad on Robinhood Chain, and its move beyond PUMP can be viewed as one of the clearest signs that the final stage of this rotation has already occurred.
Therefore, going forward:
For spot investors, this may be a time to make profits.
For future traders, the focus may shift toward looking for opportunities to short into rebounds.
At the moment, rebounds in BTC, ETH, and other major cryptocurrencies may increasingly represent opportunities to establish short positions rather than chase the upside.
Finally, none of the information in this article constitutes investment advice. Please conduct your own research, stay informed of additional developments, assess market conditions comprehensively, and make your own investment decisions.