US Inflation Traders To Use Untested Fallbacks For Missing CPI

Economic

Summary:

The $7 trillion market for securities linked to US inflation will employ fallback mechanisms for the first time after the longest government shutdown in history derailed economic data collection.

The nation's Bureau of Labor Statistics said it was cancelling its October consumer price index report, saying it was unable to retroactively collect some data. The inflation-protected segment of the US Treasury bond market and US inflation derivatives both use the CPI to determine how much investors get paid.

The lack of official data will trigger contingency plans written into legal documentation decades ago, with the added wrinkle that the bond and derivatives markets use different fallbacks.

The he cancellation was widely anticipated. White House officials Oct. 24 said October inflation data probably wouldn't be released, and the BLS said Wednesday that the October unemployment rate wouldn't be calculated because of the Oct. 1 to Nov. 12 shutdown.

"Even before the announcement, it was general consensus that the fallback would be activated for October, so the market had largely already priced this in," said Jon Hill, head of US inflation strategy at Barclays Capital Inc.

While past shutdowns delayed publication of economic data, until now the BLS hasn't failed to produce a major report.

The lack of data is a headache for investors in general at a time when US inflation — despite having receded from the generational highs reached in 2022 amid pandemic-related supply-chain disruptions — continues to exceed the Federal Reserve's 2% target. As a result, several Fed policymakers are opposed to lowering interest rates further after two cuts this year in response to signs of job-market stress.

That's increased the power of inflation data to move markets, and some Fed officials have said the lack of data is a justification for pausing rate cuts at their next meeting scheduled for Dec. 9-10.

The BLS said it will publish November CPI data on Dec. 18, meaning the latest official inflation data available to the rate-setting committee will be from September.

The BLS typically gathers pricing information from roughly 80,000 items across the country, mostly in-person. While the agency recalled staff to prepare the September CPI report — which was needed for US Social Security to calculate its annual cost-of-living adjustment — October data weren't collected.

The agency said it can acquire most of the non-survey data for October and "where possible" will publish such values in the November release.

For Treasury Inflation-Protected Securities, or TIPS, monthly CPI values are used to interpolate daily index ratios that determine — with a time lag — accrued interest, which is due to the seller of a bond by its buyer. The October CPI would be used to interpolate values for Dec. 2 to Jan. 1, 2026.

In the absence of a published CPI value, regulations for TIPS call for a synthetic number "based on the last available twelve-month change in the CPI," in this case from September 2024 to September 2025.

Inflation derivatives use a different fallback, creating a divergence between TIPS, a $2 trillion market, and swaps.

Standard inflation swap contracts — with a notional value outstanding of about $4.5 trillion at LCH, the clearinghouse unit of London Stock Exchange Group — employ International Swaps and Derivatives Association rules. If the derivative is not linked to a specific bond, ISDA's fallback calculation applies the September 2025 year-on-year change to the October 2024 level.

The difference in methodology leads to diverging payouts. For October, the TIPS fallback would produce an index reading of 325.604, while the swaps fallback would be 325.174, according to Bloomberg calculations.

TIPS maturing in January 2026 greatly outperformed inflation swaps in recent weeks, "reflecting the market pricing in a meaningful probability of the fallback being activated," Barclays' Hill said.

Earlier this month, ISDA issued guidance on how the swap fallbacks would be triggered "in the interest of mitigating market risk and the promotion of orderly valuation and settlement of positions by market participants."

Source: Bloomberg Europe

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Justin

Economic

The U.S. Labor Department will not release the October Consumer Price Index (CPI) due to a government shutdown, rescheduling the November report for December 18, 2025, as stated by Jin10 data.

This delay affects market volatility, influencing cryptocurrencies such as BTC and ETH, as U.S. CPI figures guide interest rate expectations and monetary policies.

Government Shutdown Delays CPI Report, Markets React

The U.S. Labor Department cites the government shutdown as the reason behind the absence of the October CPI report. BLS leadership faces capacity challenges due to vacant positions, and essential staff are affected by ongoing hiring freezes. The immediate impact on financial markets is notable, given the relevance of CPI data to interest rate expectations and monetary policy decisions. Analysts anticipate a significant reaction in the prices of key cryptocurrencies, particularly those sensitive to U.S. economic indicators.

To date, no government officials have publicly commented on this specific report cancellation. However, the lack of critical economic data prompts discussions in financial sectors about its wider implications.

"The BLS calendar contains publication dates for most news releases scheduled to be issued by the BLS national office in upcoming months. ... The calendar is updated as needed with additional news releases, usually at least a week before their scheduled publication date." — U.S. Bureau of Labor Statistics, Official Entity, BLS

Source: CryptoSlate

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Adam

Economic

As we share below, the odds of a Fed Funds rate cut at the December FOMC meeting are down to 33%. On Wednesday, there was an abrupt repricing of rate cut odds after the BLS cancelled the October employment report and delayed the November data until December 19th. Furthermore, the BLS JOLTS report for September has been canceled, and the data for October will be released on December 9th.

For reference, the FOMC meeting is on December 10th, so they will lack meaningful employment data when deciding whether to cut rates. The weakening labor market is the predominant reason the Fed cut rates by 25 bps at each of its last two meetings.

Despite the absence of recent employment data, Fed officials will argue that they can still assess the labor market using alternative data sources. Markets do not agree, as judged by the downgrade in rate-cutting odds. For what it’s worth, the last two weekly ADP employment change reports show a decline of 11,250 jobs in the last week of October, and another loss of 2,500 jobs in the first week of November.

In other Fed news, the minutes from the FOMC’s October meeting, released on Wednesday, show a deep divide over whether to cut interest rates at the December meeting. Several officials noted that progress in lowering inflation has “stalled” and cautioned that further rate cuts could risk entrenching higher inflation and undermining the Fed’s credibility regarding its 2% inflation target.

However, another group argued that further cuts are necessary to guard against rising unemployment and some signs of weakening economic growth. Per the minutes:

“Participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year.”

Rate Cut Odds Slip Due to Lack of Data_1

Nvidia Hits Another Home Run

Once again, NVIDIA (NASDAQ:NVDA) reported stellar quarterly earnings. For the third quarter, the company reported revenue of $57.0 billion, surpassing analyst expectations of $55.4 billion. The increase represents a 62% year-over-year rise and a 22% increase compared to the prior quarter. Not surprisingly, their data center segment accounted for a significant portion of the revenue ($51.2 billion). Adjusted earnings per diluted share came in at $1.30, beating Wall Street’s $1.26 forecast. Per Nvidia’s CEO Jensen Huang,

Blackwell sales are off the charts, and cloud GPUs are sold out. Compute demand keeps accelerating and compounding across training and inference — each growing exponentially. AI is going everywhere, doing everything, all at once.

It’s not just the sales and earnings growth that make Nvidia’s story bullish; its gross margins were little changed at a whopping 73.4% on a GAAP basis. Furthermore, as in prior reports, they continue to provide forecasts that exceed Wall Street’s expectations. The initial market reaction was positive, with the stock gaining about 5%.

Rate Cut Odds Slip Due to Lack of Data_2

The screenshot below, courtesy of FinViz, shows that with the new earnings data, Nvidia has a PEG ratio of 1.10. That is cheaper than the S&P 500 and well below some of its technology-sector competitors. The PEG ratio below assumes a P/E ratio of 48 and a five-year future EPS growth rate of 44%. While such growth is a tall order, it is a good bit slower than their 65% EPS growth over the last year. This leaves us with two questions to ponder:

Is Nvidia’s earnings report enough to alleviate recent fears of a bubble in the AI industry?

Might Nvidia be a value stock?

Rate Cut Odds Slip Due to Lack of Data_3

Nvidia: The Bearish Take

The prior section spoke highly of Nvidia’s earnings announcement. We thought it would also be helpful to point out some aspects of the report that some claim are not so positive.

The first graph below shows that inventories are up 32% quarter over quarter. If their GPUs are sold out, why is the inventory increasing rapidly?

Accounts Receivable grew by $5.58B in the last quarter. Take away growth in accounts receivable and revenue missed expectations by $3.49 billion.

A significant discrepancy between the net income declared of nearly $32B and the operating cash flow of $24B. Some claim this is due to creative accounting.

The second graphic below is a tweet from Michael Burry. He has recently claimed that companies are using depreciation schedules for Nvidia chips that exceed the chips’ useful lives. Doing so props up earnings by reducing expenses. Accordingly, better-perceived financial health allows companies to finance CAPEX, which ultimately flows to Nvidia.

Rate Cut Odds Slip Due to Lack of Data_4

Source:investing

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Adam

Economic

Investors are growing uneasy that the rapid rise in public debt used to bankroll AI investments could strain the U.S. corporate bond market and eventually dampen the appeal of tech stocks, despite leverage across most major companies remaining low for now.

Big tech firms are turning aggressively to the debt markets in their race to build AI-ready data centers, a shift for Silicon Valley firms that typically relied on cash to fund their investments.

Since September, public bond issuance by four of the major cloud computing and AI platform companies known as "hyperscalers" has hit nearly $90 billion, with Google owner Alphabet (GOOGL.O) selling $25 billion in bonds, Meta (META.O) $30 billion, Oracle (ORCL.N) $18 billion, and Amazon (AMZN.O), the most recent, $15 billion, according to Reuters calculations of publicly available data. Only Microsoft (MSFT.O), the fifth one, has not tapped the debt market in recent weeks.

Investors say that, so far, they are not overly concerned about the impact on stock valuations because of the recent fundraising, since these companies remain lightly leveraged relative to their scale.

But the sudden pickup in public debt issuance has raised questions about the market’s ability to absorb the surge in supply and is feeding into growing worries over AI-related spending that have helped trigger a sharp pullback in U.S. stocks this month after six months of gains. The S&P 500 is still up 11% this year, with tech stocks among the main contributors to gains.

"You have all these hyperscaler issuance coming out, and I think the market woke up to the fact that it's not going to be private credit markets that are going to fund AI, it's not going to be free cash flow. It's going to have to come from the public bond markets," said Brij Khurana, portfolio manager at Wellington Management Company.

"You need capital to come from somewhere to finance this," he said. "What's happening is a recognition that you need money almost coming out of stocks into bonds."

Including a $27 billion financing deal Meta struck with Blue Owl Capital in October to fund its biggest data center project, hyperscaler debt issuance has jumped to over $120 billion this year from an average of $28 billion over the past five years, analysts at BofA Securities said in a recent note.

Rising debt at tech companies adds a new layer of concern to a market that, despite being fueled by the promise of high AI returns, remains wary that the technology has yet to deliver the profits needed to justify such large capital spending.

"There are doubts that have emerged in the last few weeks around the AI spend story that are related to ... the need for firms to be able to finance that, and that includes through debt finance," said Larry Hatheway, global investment strategist for Franklin Templeton Institute.

AI capital expenditure is projected to increase to $600 billion by 2027, up from over $200 billion in 2024 and just under $400 billion in 2025, and net debt issuance is expected to reach $100 billion in 2026, Sage Advisory, an investment management firm, said in a recent note.

While hyperscalers have been ramping up borrowing, Nvidia (NVDA.O), a major supplier of computing power to them, has trimmed its long-term debt from $8.5 billion in January to $7.5 billion by the end of the third quarter. Credit ratings agency S&P Global Ratings last month revised its outlook on the company to "positive" from "stable," citing revenue growth and robust cash flow.

Microsoft and Oracle declined to comment. An Amazon spokesperson said proceeds from its recent bond sale will fund business investments, future capex, and repay upcoming debt maturities, noting that such financing decisions are part of routine planning. Alphabet and Meta did not immediately comment.

MARKET CONSTRAINTS

Demand for recent tech bond deals has been strong, but investors demanded sizeable new issue premiums to absorb some of the new securities. Alphabet and Meta paid about 10-15 basis points over the companies' existing debt with their most recent debt issues, said Janus Henderson in a note.

While U.S. investment grade credit spreads - which indicate the premium highly rated companies pay over Treasuries to attract investor demand - remain historically low, they have ticked up in recent weeks, partly reflecting concerns over the new wave of bond supply hitting the markets.

Jitters over AI spending set to grow as US tech giants flood bond market _1

Chart shows that US investment grade credit option-adjusted spreads over Treasuries have recently hit their highest in six months

"For much of the year, credit spreads have been grinding tighter ... But the recent deluge of supply – particularly from tech – may have changed the game," said Janus Henderson.

To be sure, the shift to debt is expected to remain a small portion of total AI spending by large tech companies, with UBS recently estimating that about 80-90% of their planned capital expenditure still comes from cash flows. Sage Advisory's research said the top hyperscalers are expected to move from having more cash than debt to just modest levels of borrowing, still keeping leverage below 1×, meaning their total debt would be less than what they earn.

"Supply bottlenecks or investor appetite are more likely to act as constraints on near-term capex than cash flows or balance sheet capacity," analysts at Goldman Sachs said in a note this week.

Excluding Oracle, hyperscalers could absorb up to $700 billion in additional debt and still be viewed as safe, keeping leverage below that of the typical A+ rated firm, they said.

"These companies still have very solid business lines that are just spinning off tons of cash," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

Source: reuters

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Devin

Economic

The weakness from the preliminary UMich data for November has been confirmed with the final sentiment print confirmed the so-called 'K-shaped' economy as sentiment slumps with stocks near record highs.

However, the small silver lining with today's UMich data was an improvement intra-month from 50.3 to 51.0 for the headline (but still at its lowest since June 2022).

After the federal shutdown ended, UMich Director Joanne Hsu notes that sentiment lifted slightly from its mid-month reading.

However, consumers remain frustrated about the persistence of high prices and weakening incomes.

Under the hood, Expectations picked up modestly from 50.3 to 51.0, just off record lows, while Consumer Expectations plunged to 51.1 - the lowest in the survey's history going back to 1977...

Source: Bloomberg

Who the hell are they surveying?

Interestingly, while Democrat's confidence remains vastly worse than the rest of the political cohorts, November saw Republicans and Independents lose some faith too...

Source: Bloomberg

On the bright side, inflation expectations tumbled. After four months of sharp increases to start 2025, long-run expectations fell for three consecutive months through July, followed by three more months of small increases. Long-run expectations softened considerably this month. The November reading is well below peaks in monthly readings from June 2022 and April 2025, but still above 2024 readings.

Source: Bloomberg

Expectations exhibit substantial uncertainty, particularly in light of ongoing developments with economic policy and concerns that impacts on inflation are still to come.

Democrats continue to lead the fear of inflation (though dropped to January lows this month)...

However, this month, current personal finances and buying conditions for durables both plunged more than 10%...

and young and old alike are worried about their jobs...

By the end of the month, sentiment for consumers with the largest stock holdings lost the gains seen at the preliminary reading.

This group's sentiment dropped about 2 index points from October, likely a consequence of the stock market declines seen over the past two weeks.

Source: Zero Hedge

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Winkelmann

Forex

Cryptocurrency

Key points:

· Soaring crypto markets highlight mainstream finance links

· Regulators worry run on stablecoins could hit stability

· Stock market, bank exposure to crypto small but growing

Cryptocurrency markets have surged in recent years, in part fuelled by the Trump administration's pro-crypto stance which has encouraged wider acceptance among financial institutions.

With a total value of $3.2 trillion and around $197 billion of trading volume per day, cryptocurrencies represent a small part of global markets, crypto tracker CoinGecko estimates.

But regulators and investors are still worried about whether any problems in the lightly regulated crypto world could spill over into the wider financial system.

The biggest cryptocurrency, bitcoin, fell below $90,000 for the first time since April this week, and some $1.2 trillion has been wiped off the value of all cryptocurrencies in six weeks.

Bitcoin, generally moves in line with broader risk appetite. Its correlation with the S&P 500 on a one-month rolling basis this week was 0.84, its strongest in six weeks, LSEG data shows. Correlation is measured from -1 to 1.

Here's where crypto and mainstream markets intersect.

STABLECOIN RESERVES

Stablecoins are cryptocurrencies pegged to a real-world currency, usually the U.S. dollar. Stablecoin issuers hold reserves to match the number of tokens they have created, and say that token-holders can swap their stablecoins back into dollars on demand.

Financial stability experts warn that a rush of redemption requests would cause a run on these reserves, affecting banks where cash is deposited, or even the assets that the reserves are invested in.

The stablecoin market is dominated by El Salvador-based Tether, which has around $181 billion in reserves, of which $112 billion is held in U.S. Treasuries. Rival Circle holds $24 billion in U.S. Treasuries.

Thomson ReutersWhere do the biggest stablecoins put their reserves?

CRYPTO-RELATED STOCKS

Crypto stocks have soared in 2025, and more crypto companies have gone public. But pure players remain a tiny part of the overall market.

The market cap of stocks in the "blockchain and cryptocurrency" and "cryptocurrency mining" category is $225 billion, just 1.8% of the global equities market, LSEG data shows.

This excludes so-called crypto treasury companies, whose business model is to buy and hold crypto. While the bitcoin buyers include major players like Strategy, dozens of penny stocks have this year been taken over by crypto enthusiasts to bet on rising prices.

Standard Chartered estimates that a bitcoin price below $90,000 leaves half of these companies' corporate treasuries holding bitcoin worth less than they paid for it.

Four of the 173 new U.S. public listings in 2025 have been crypto companies, raising a combined $1.2 billion, around 3.3% of the total funds raised from U.S. IPOs, LSEG said.

Thomson ReutersBitcoin-buying company shares struggle after 2025 peak

BANK EXPOSURE TO CRYPTO

Banks gain exposure to the crypto world by taking on crypto-linked clients, holding stablecoin reserves, or offering crypto-related services such as asset custody.

Some small banks specialise in crypto, concentrating the risk, as seen in 2023 when crypto-focused U.S. bank Silvergate Capital collapsed after customers pulled deposits.

U.S. regulators this year made it easier for banks to engage with crypto-related activities, pressuring regulators elsewhere to rethink their approach.

Data on banks' exposure is hard to find, but what is available suggests it is small but growing.

The European Central Bank said in a May review that significant institutions in the euro zone provided 4.7 billion euros worth of crypto asset custody services in 2024, up from 400 million euros in 2023.

Basel Committee on Banking Supervision data shows 5.9 billion euros worth of prudential exposure to crypto in the second half of 2024, among banks from countries which volunteered data.

Thomson ReutersBanks' exposure to crypto assets jumped in 2024

CRYPTO INVESTMENT FUNDS

The January 2024 decision by U.S. regulators to allow bitcoin exchange-traded funds unleashed a new wave of buyers, including institutional investors such as sovereign wealth funds and pension funds pouring money into crypto.

The number of digital asset exchange-traded products worldwide has surged to 367 in 2025, up from 104 in 2021, according to Morningstar Direct data.

Still, with $222.3 billion in assets under management, crypto ETPs are tiny compared to the $17.4 trillion managed by the world's non-crypto ETPs, Morningstar estimates.

Thomson ReutersCrypto fund flows have been above $40 billion for last two years

Source: TradingView

Risk Warnings and Disclaimers

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Adam

Forex

Provisional PMI data for November shows that business activity in the eurozone is still growing strongly, and companies are feeling optimistic about the upcoming year.

However, there are some mixed signals: the growth of new orders has slowed down, and businesses stopped hiring new workers after a brief increase in October.

Financially, companies are facing higher expenses. Their operating costs rose at the fastest speed in eight months, largely due to higher prices in manufacturing. Despite these rising costs, businesses only raised their own prices slightly, the smallest increase for customers in over a year.

Euro Area Business Activity Remains Solid as EUR/USD Hovers Near Key Levels_1

For all market-moving economic releases and events, see the MarketPulse Economic Calendar.

The eurozone economy continued to show solid growth in November, although the momentum remains uneven across sectors.

Overall Activity: The Composite PMI Output Index posted at 52.4, signaling a solid monthly rise in business activity, marking the 11th consecutive month of growth. This rate of expansion is among the sharpest seen in the last two and a half years.

Sector Divide: Growth was driven almost entirely by the service sector, which expanded at its fastest pace in a year and a half. In contrast, manufacturing production increased only slightly, tying for the slowest rate in the current nine-month growth sequence.

New Orders: While new orders rose for the fourth month in a row, the rate of growth slowed down. This was largely due to weak international demand, as export orders (including trade within the eurozone) decreased again.

On the inflation front, input costs rose at the fastest rate since March, but output price inflation eased to its lowest level in just over a year. Business sentiment edged higher in November, signaling improving confidence despite softer demand indicators.

Euro Area Q3 Negotiated Wages

The European Central Bank's survey of negotiated wages for the third quarter came in well below expectations with a print of 1.87% YoY vs estimates of 2.45%. The ECB and market participants had been hoping for a better number which would have shown that real wages are rising which would lead to solid demand in 2026.

This will now be something the ECB will monitor moving forward and lines up with some of the concerns around demand raised by the PMI data.

Technical Analysis - EUR/USD

Looking at EUR/USD from a technical standpoint, the pair appears on course to print a fresh lower low.

EUR/USD has largely been driven by US Dollar developments of late and the one concern may hinge on the price action of the US Dollar Index.

The Dollar index has peaked above the psychological 100.00 mark but has printed what looks like a double top pattern.

If the Dollar index begins to drop this could scupper the move for EUR/USD to print a fresh lower low and EUR/USD coil revisit the recent swing high at 1.1650.

EUR/USD Daily Chart, November 21, 2025

Support

1.1500

1.1450 (key pivot level)

1.1405 (200-day MA)

Resistance

1.1585

1.1650

1.1700

Looking Ahead

Later in the day we have several central bank officials are scheduled to speak today, most notably ECB President Christine Lagarde at a conference in Frankfurt. Since the event focuses on the benefits of investing in Europe, Lagarde may discuss the idea of strengthening the Euro's role on the world stage. Recent reports suggest the ECB is considering a plan to let central banks outside the eurozone access Euros more easily.

This strategy is designed to make countries more comfortable using the Euro for international trade, similar to a method China has used for its currency and to boost the Euro's global standing.