PREVIEW: US CPI data will be released on Tuesday, February 14th at 08.30EST/13:30GMT; JPM's base case is for 6.0-6.3%, which would result in a risk rally, the bank says

EXPECTATIONS: The consensus looks for headline CPI to rise +0.5% M/M in January (prev. -0.1%), though the annual measure is seen paring back to 6.2% Y/Y from 6.5%. The core measure is seen rising 0.4% M/M in January, matching the rate seen in December, while the annual core measure is expected to ease to 5.5% Y/Y from 5.7%.

DRIVING THE DATA: The CPI will be underpinned by a small rise in energy prices and persistent strength in food inflation, Credit Suisse says, though the sharp fall in used vehicle prices seen in recent months is unlikely to persist. CS says goods prices continue to face headwinds, but the pace of decline is likely to moderate; services inflation will continue to be supported by shelter, which the bank sees remaining elevated for at least a few months before decelerating in H2. CS says that if the market consensus is realised it would be consistent with inflation eventually returning to 2%, "but any reacceleration in the monthly run rate for core CPI would be an unwelcome development for the FOMC," adding that "combined with January’s strong employment report, this would likely keep Fed rhetoric hawkish, emphasising the need for ongoing rate hikes and a low probability of a pivot toward easing this year."

TRADING SCENARIOS (VIA JPMORGAN):

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  ABOVE 6.5% Y/Y (5% chance, according to JPM): JPM says this would be bearish, and "would align with the resurgent inflation hypothesis and could be driven by services where the consumer has shown a rebound in spending, evidenced by the latest Manheim print," and adds that "more troubling for bulls is that this scenario would occur before we have witnessed an inflationary impulse from China." In this scenario, JPM thinks the SPX would fall between 2.5-3.0%. And if the headline printed above 6.5%, JPM says this would be a tail-event and would look to sell expensive software names, crypto, SPACs, and high short-interest names.


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  BETWEEN 6.4-6.5% (25%): JPM says this hawkish outcome would not be as negative as it would if it happened last year. "The recent backup in bond yields may be enough such that we do not see another rate hike priced in given that we would have the March print before the next Fed meeting." The bank thinks the SPX would decline around 0.75-1.50% in this scenario, adding that the lower end of that range would be likely if the SPX holds 4k into the print.


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  BETWEEN 6.0-6.3% (65%). This would be a bullish outcome, and JPM thinks yields would fall, along with the USD, and risk assets would get a boost. "It may have investors question the pace of disinflation given the previous two prints had 60bps declines from the prior month," the bank writes, "given the recent market action, we could see the SPX rise between 1.5-2.00% and then see the rally faded." The bank says that the market move would be led by Tech along with outperformance by Cyclicals.


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  BELOW 5.0% (5%): In this scenario, JPM says the market would re-price expectations for the Fed to complete two more rate hikes to just one more rate hike. "Equities would be boosted by a fall in both the USD and bond yields; SPX would rise between 2.5-3.0%"

13 Feb 2023 - 11:55- Research Sheet- Source: Newswires