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Good Time to Buy Volatility

Oct 14, 2022 • 6 Min Read
Author
Sean Farrell
Sean Farrell AC

CPI Still Hot

For the second consecutive month, inflation was much hotter than analysts had anticipated. Despite headline CPI easing for the third consecutive month, the headline figure of 8.2% came in above the market consensus of 8.1%, and Core CPI accelerated to 6.6%, the highest in 40 years. Despite some relief in goods inflation, the numbers were not highly constructive for risk markets (or so it would seem).

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Bottoming on Bad News Again?

Pre-market rates spiked, and equities and crypto sold off, opening well below the prior day’s close. However, volumes were generally low, and as put option buyers closed their positions, late shorts got washed out, buyers moved in, and the sell-off would go on to be erased rapidly and conclusively.

The bullish reversal saw bitcoin finish the day over 8% off the daily low, with most major altcoins following suit.

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This is not the first time we have witnessed this bullish reaction to bad inflationary data this year. In July, the June CPI came in at an eye-popping 9.1%, the highest level in 40 years. Despite this seemingly cataclysmic data point hitting the tape, asset prices found a relatively solid footing and went on to have a rather bullish summer. While the rally was interrupted come September, it was an excellent example of the mar...

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