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Inflation is dead. Long live inflation. That's what the bulls want to hear at 13:30 UK time. But life sucks sometimes and we don't always get what we want.

JPM lays out some scenarios here. Don't take them literally, they're intended to be thought-provoking. πŸ‘‡

Current consensus is for Headline YoY 7.3%, Core YoY 6.1%, Headline MoM 0.3%, and Core MoM 0.3%. Feroli’s (JPM Chief US Economist) estimates are: 7.3%, 6.1%, 0.3%, and 0.36%.


Bloomberg kindly turned these into a nice easy to read table...

And here are the details πŸ‘‡

  • Prints 7.8% or higher (5% odds). Inflation moving higher after the November print would likely have investors questioning whether the Nov was an aberration and if inflation is reaccelerating from here. Further, the near-term inflation outlook is muddled as the Chinese reopening could prove to be inflationary. SPX down 4% - 5%.
  • Prints 7.5% - 7.7% (25% odds). If the CPI is to miss hawkishly, the misses this year have ranged from 10bps – 30bps. The 20bps+ misses have triggered an average -2.3% move in the SPX. Should this outcome occur, given the recent bear rally, we could see a more dramatic move here. SPX down 2.5% - 3.5%.
  • Prints 7.2% - 7.4% (50% odds). This inline print is a market positive event but given positioning being less light than in November but is historically low. This could initiate short-covering as well as shifting the near-term trading range higher, potentially from 3700 – 3900 to 3850 – 4150. SPX +2% - +3%.
  • Prints 7.0% - 7.2% (15% odds). A bullish outcome that could pull terminal rate lower despite expectations for higher DOTS being released the next day. While 2 data points is not a trend, this may embolden bulls especially if commodity prices continue their decline. SPX +4% - 5%.
  • Prints 6.9% or lower (5% odds) A print here could be the technical end of the bear market, putting this latest rally at a more than 20% move from its lows in October. The logic here is that not only is inflation dissipating but its pace is accelerating. This would give increasing confidence in projections of headline inflation falling ~3% in 2023. Further, if inflation is at 3%, irrespective of the labor market conditions, it seems unlikely that the Fed would hold the terminal rate at 5%. Any Fed pivot will rip Equities. SPX +8% - 10%.

The Cleveland Fed model sees things getting a little dicey for the bulls then... Projecting 7.5% headline CPI for November.

Which could definitely put pressure on equities and dampen hopes of a rapid inflation fall over coming months.

Even then, it'll be important to monitor the peak rate pricing. Here's how things look ahead of CPI & the Fed on Wednesday πŸ‘‡

Will the market see more rate hikes next year due to entrenched inflation?

Or is the peak rate set in stone, and it's now all about economic weakness, regardless of what happens with inflation?

We've dug into that here, along with some thoughts on the Fed meeting tomorrow.

Give it a read πŸ‘‡

If US inflation misses, is the last Fed hike in sight?
In a massive week for markets, the most eagerly awaited decision will be the Fed’s interest rate announcement