Inflation Data Wednesday. How Will Markets React?
Friday’s closer ended on a question: whether this week’s inflation report keeps the Fed’s next hike pointed at December or pulls it forward to October. This week answers it, and shows how markets react. Last week the Fed barely mattered to long-term rates and risk assets, and Wednesday’s inflation report tests whether that holds. Banks report Tuesday and Wednesday, the inflation report lands Wednesday morning, producer prices and retail sales follow Thursday, and Fed Chair Kevin Warsh speaks Thursday night. Over the weekend, an attack on Saudi Arabia’s main airport added a new front to the Iran war, and oil is climbing again. Section 02 explains what Wednesday’s report has to show and how markets are likely to respond.
A weekend attack in Saudi Arabia pushed oil up, and the bond market sits out the day.
Monday is Columbus Day, so the bond market is closed and long-term rates get no new reading until Tuesday. Risk assets did not extend Friday’s rebound off their lows. Bitcoin gave back an early Monday rise and sits roughly where it started Friday, Ethereum gained, and the Nasdaq slipped while the broad market held roughly flat, Section 05 has the detail.
Friday’s fund flows, which posted after the closer went out, brought a small inflow into Bitcoin funds, the first since Tuesday, after a week of heavy selling, while Ethereum funds sold for a ninth straight day.
Iran-backed Houthi fighters in Yemen hit King Khalid International Airport in Riyadh on Saturday, killing at least 13 people and wounding more than 300, the deadliest of several attacks on Saudi airports this week. President Trump called it not acceptable, said he is weighing whether the US should join Saudi strikes on the Houthis, and said separately that he is about to settle or win the war with Iran. A deal Trump announced Friday to bring more Russian diesel to market took some heat out of diesel prices, but crude rose Monday on the attack.
Wednesday’s inflation report will move Fed rate expectations, and prices will follow.
The Fed raised rates in September and has since told the market it is in no rush to do it again. Traders agree. They put the next hike in December, and the chance of one at the October 27 to 28 meeting is still only about one in five. Wednesday’s inflation report is the last big test before the Fed goes quiet on Saturday, and Fed Chair Warsh speaks one more time before then.
A hotter inflation number makes a Fed rate hike more likely. Expectations of higher rates push long-term interest rates and the dollar up, which usually pressures stocks and Bitcoin. Bitcoin pays no interest, so when safe bonds pay more, holding it costs more in what you give up. A cooler number does the opposite.
Recent weeks showed that chain can break. As the Fed’s next hike became less likely, long-term rates kept climbing anyway. Later last week, a Treasury bond auction that went well and the Treasury’s planned buyback of older long-term bonds pulled them back off their highs and closer to short-term rates. So Wednesday tests two things, what the number says and whether long-term rates and other markets still follow the Fed.
The report is expected to send two different signals. The headline number, which includes food and energy, is expected to jump because of the surge in oil and gasoline prices. The core number, which leaves those out and is the one the Fed watches more closely, is expected to stay tame. That makes the core number the one that matters.
| September report | Expected | August |
|---|---|---|
| Core inflation, for the month | 0.2% | 0.3% |
| Core inflation, over the year | 2.5% | 2.4% |
| Headline inflation, for the month | 0.6% | 0.4% |
| Headline inflation, over the year | 3.6% | 3.4% |
Source: Investing.com economic calendar consensus, Monday 1:10pm ET. Forecasts vary a little by source.
The Fed’s voices most worried about inflation are not backing off. A Fed voter who dissented in favor of a hike in July said Monday that inflation looks broad-based, not just energy, and pointed to the AI buildout pushing up prices of computer and electronic parts. She said a restrictive stance, meaning rates high enough to slow the economy, is appropriate, but she stopped short of backing a hike this month.
One number decides whether December holds, and how markets react.
Here’s the current state, plus three ways this week could evolve from here.
This weekend’s oil move will show up in later inflation reports, not Wednesday’s, because September’s prices are already in the books. If core lands right at the expected 0.2%, little changes: the Fed stays patient and December stays the target date, and a hot headline number alone would likely be looked through, since energy is behind it. On Hyperliquid, a crypto exchange where positions are public, the number of open Nasdaq 100 contracts, called open interest, jumped as price slipped, a sign of traders opening new bets on a fall since Friday, Section 05 has the detail.
This is the path that ends the Fed’s patience. It would revive the October hike, push long-term rates back toward last week’s highs, and hit the rate-sensitive parts of the market first. It would also test Thursday’s Treasury buyback as a backstop.
This is the path where the Fed’s patience grows. Hike odds would come down, long-term rates would ease, and risk assets would get room to recover. Oil and the Saudi conflict would still be the main swing factor.
The weekend added a new front, and this path does not depend on Wednesday’s number, because a bigger oil move would reach later inflation reports and the Fed’s tone at the same time.
Three Academy lessons, run against this week’s real numbers.
Earn is for putting dollars to work: buy the coin and sell the perpetual contract against it to collect funding. Borrow is for people who need cash without selling their Bitcoin, and the cost is the funding you pay while you keep your exposure. Earners got a bit less over the week, though the latest day paid 7.9%, above the 7-day average. Borrowing cost more over the week, and the latest day cost 7.4%, still running well above its average, so it is getting more expensive. Over the past 30 days the cost averaged 1.6%.
A covered call is when you hold a coin and sell someone the right to buy it from you at a higher price, collecting a fee up front. If the price never gets there, you keep the fee and the coin. If it does, you sell at the higher price and your gain stops there. At about the same distance out of the money, yields are close to Friday’s, 13.6% against 13.3% on Bitcoin and 25.3% against 25.2% on Ethereum.
| Call | Strike | OTM | Fee per coin | Annualized yield |
|---|---|---|---|---|
| Bitcoin | $92,000 | 11.2% | $1,406.10 | 13.6% |
| Bitcoin, wider | $93,000 | 12.4% | $1,240.68 | 12.0% |
| Ethereum | $2,800 | 11.3% | $79.27 | 25.3% |
| Ethereum, wider | $2,850 | 13.3% | $68.57 | 21.9% |
| Annualized funding | 1-day | 7-day | 14-day | 30-day |
|---|---|---|---|---|
| WTI crude (long side) | -56.42% | -39.12% | -21.47% | -10.66% |
| Natural gas (short side) | +413.05% | +401.73% | +210.80% | +116.45% |
The WTI against Natural Gas spread, long oil and short natural gas, is a funding-carry trade rather than a directional bet. Oil and natural gas perpetuals roll from the November contract to the December contract between the fifth and tenth business day of the month. December crude is cheaper than November, so crude’s funding turns negative and pays the long side. December natural gas is more expensive, so natural gas funding turns positive and pays the short side. That is why the carry is so large: the latest day is running above the 7-day average, so the roll is still under way. Over the last 100 hours, natural gas gained ground on oil, even though the ratio sits above Friday’s reading.
The pairs below track stocks. Intel against Tesla is the earner-versus-spender rotation, whether the market favors companies profiting from the AI buildout over those spending heavily on it. SanDisk is a flash memory maker and Dell a computer maker.
| Pair | Now | Friday | Gaining ground, 100 hours |
|---|---|---|---|
| Intel vs. Tesla | 0.2680 | 0.2758 | Tesla |
| SanDisk vs. Dell | 2.58 | 2.75 | Dell |
| Bitcoin vs. QQQ | 110.82 | 109.96 | Bitcoin |
Oil climbed, while gold, silver and the Nasdaq slipped.
On Hyperliquid, Nasdaq 100 open interest jumped 24% as price slipped, a sign of fresh shorts. Oil and Ethereum shorts covered, and Bitcoin and Ethereum liquidations came mostly from shorts.
| Asset | Backdrop | Open interest change | Volume | Longs liquidated | Shorts liquidated |
|---|---|---|---|---|---|
| Bitcoin | flat | -0.95%$3.1B open | $3.99B | $9.06M | $14.32M |
| Ethereum | shorts covering | -1.48%$2.8B open | $2.66B | $0.98M | $3.90M |
| WTI crude | shorts covering | -10.58%$132M open | $220M | $75.4K | $376.0K |
| Gold | fresh shorts opening | +5.95%$316M open | $62M | $392 | $24.3K |
| Silver | longs giving up | -5.07%$161M open | $114M | $0 | $85 |
| Nasdaq 100the index QQQ tracks | fresh shorts opening | +23.94%$242M open | $313M | none | none |
| S&P 500the index SPY tracks | flat | -1.33%$363M open | $223M | $0 | $33.4K |
Hyperliquid is a different exchange from the prices above, so its numbers will not match them exactly. Nasdaq 100 and S&P 500 are the indexes that QQQ and SPY track. Hyperliquid lists the indexes themselves and has no QQQ or SPY market.
Open interest is the number of contracts still open, measured in contracts so price moves do not distort it. Volume is the dollar value of all trades over the same window, estimated from Hyperliquid’s one-minute price data. A backdrop needs price and open interest to each move 0.5% or more: open interest up with price down is fresh shorts opening, both down is longs giving up, open interest down with price up is shorts covering, and smaller moves read flat. A liquidation is a position an exchange force-closes because the trader can no longer cover the losses. Longs liquidated are traders betting on a rise who were forced out as price fell, and shorts liquidated are the reverse.
Banks Tuesday, inflation Wednesday, the Fed’s last word Thursday.
Data and headlines are both live this week. Plan for either one to move prices.
Last week Bitcoin fell and its funds turned from buyers to sellers while long-term rates peaked and then eased. A hot core inflation report would put long-term rates back in play, so how Bitcoin and its funds react to Wednesday is worth watching.
Wednesday’s inflation report and Thursday’s producer prices and retail sales all land at 8:30am ET, and weekend headlines out of Saudi Arabia can gap oil before the open. The monthly commodity contract roll also runs through the middle of the week, so oil and natural gas funding can keep swinging, Lesson 7 has the detail. Section 05 shows which side got liquidated since Friday: more shorts than longs in every market that had liquidations.
The market is leaning toward December, and the data that could change that arrives Wednesday. Watching how markets react to the report before choosing a direction is a position too.
This content is produced by Harmonic for educational purposes. It is strategy education, not investment advice.