Markets spent the week embracing the soft-landing narrative. Equities pushed toward fresh highs, rate-hike expectations continued to decline, and investors grew increasingly comfortable with the idea that the Fed can remain on hold for longer.
Yet beneath the surface, an important tension remains. While front-end markets are pricing a more patient Fed, long-dated Treasury yields continue to climb, with the US 30-year yield trading above 5.2% as investors grapple with fiscal deficits, heavy Treasury issuance, and longer-term inflation risks.
Crypto, meanwhile, has largely failed to participate. Despite a steadily improving macro backdrop, Bitcoin remains stuck between USD 62,000 and USD 65,000, while broader market participation remains light. The result is a market caught between improving fundamentals and a lack of conviction, with the dog days of summer still firmly in control.
Macro: NFP, CPI and PPI All Point in the Same Direction
The data underpinning this week’s rally delivered a remarkably consistent message. Last Friday’s NFP report showed payrolls unexpectedly falling by 23,000 while unemployment held steady at 4.1%, reinforcing the view that labor market conditions are cooling without pointing to an imminent recession.
That narrative was reinforced by an in-line July CPI report and a softer-than-expected PPI print, both of which suggested inflation pressures continue to moderate. Together, the releases reduced the urgency for further Fed tightening, with market-implied odds of a September rate hike falling to just 32%.
Risk assets welcomed the data, but the bond market remains less convinced. Despite softer payrolls and improving inflation readings, long-dated yields remain elevated amid concerns around fiscal deficits, growing Treasury issuance, and the longer-term inflation outlook.
For now, markets are choosing to focus on the softer data. Whether they can continue to ignore the message coming from bonds remains one of the key questions heading into late August.
Crypto: Low Volatility Persists, But Positioning Is Slowly Improving
Crypto continues to demonstrate that while macro matters, it is no longer the primary driver of price action.
BTC briefly reacted to both CPI and PPI but was unable to make much traction beyond its familiar USD 62,000 – USD 65,000 range that contained markets for weeks. Despite an increasingly supportive macro backdrop, participation remains light, volumes are below seasonal averages, and volatility has compressed to multi-month lows. The result is a market that appears content to wait rather than anticipate.
Yet beneath the surface, the picture is becoming more constructive. Bitcoin ETFs have recorded their strongest inflow period since April last week, reversing the eight-week outflow trend that weighed on sentiment through much of the summer. Meanwhile, Ethereum fundamentals continue to strengthen, with more than 34% of circulating ETH now staked, further reducing liquid supply available to the market.
For now, crypto remains trapped between improving structural fundamentals and an absence of meaningful catalysts capable of forcing a decisive break from the current range. While the medium-term backdrop continues to improve, participation remains firmly in summer mode, leaving markets stuck in a holding pattern.
Looking Ahead: Waiting for Summer to End
Attention now shifts from inflation data toward the next round of macro catalysts. Markets will focus on today’s retail sales data which then follows an increasingly important late-August cluster that includes PCE inflation and the Jackson Hole symposium.
Whether the next catalyst arrives through central banks, bond markets, inflation data, or crypto-specific developments, the ingredients for a larger move continue to build beneath an increasingly calm surface. Until something materially changes, however, the path of least resistance remains more of the same, with light participation and well-defined summer trading ranges likely to remain intact as August draws to a close.
For now, the dog days of crypto remain firmly in place.
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