One of the most anticipated events in the market recently is the release of the US CPI data on Thursday, August 10th.
It is widely expected that the MoM growth rate of US CPI will be 0.2%, while the MoM growth rate of core CPI will also be 0.2%, both unchanged from the previous values. The YoY growth rate of CPI is expected to be 3.3%, higher than the previous value of 3.0%, while the YoY growth rate of core CPI is expected to be 4.7%, slightly lower than the previous value of 4.8%.
Unless there are major surprises, the YoY growth rate of 3% in June may already be the lowest level in recent months. As we enter July, the base effect of last year's data gradually fades away, coupled with the recent surge in energy prices, CPI may regain its upward momentum.
Morgan Stanley's trading recommendation regarding the US CPI data on Thursday is as follows:
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If the overall MoM CPI rises by 0.4% or higher. Although this scenario is unlikely to occur, with only a 5% probability, it is still possible if there is stronger-than-expected core CPI and car prices. The market reaction will push US bond yields higher, with the 10-year Treasury yield expected to reach a 52-week high of 4.24%. The surge in bond volatility may push up the volatility index, increase credit spreads, and trigger a sell-off in risk assets, as the market will reprice higher terminal rate expectations for the Federal Reserve. The S&amp;P 500 index is expected to decline by 1.75% to 2%.
If the overall MoM CPI increases between 0.2% and 0.4%. This result may disrupt the logic of slowing inflation, with a probability of about 22.5%, mainly due to higher-than-expected inflation in the housing sector, which usually has stronger lagging effects. This will lead to an improvement in market expectations for GDP, but will be offset by the impact of rising CPI, resulting in a 1% to 1.5% decline in the S&amp;P 500 index on Thursday.
If the overall MoM CPI increases by 0.2%, in line with market expectations, with a probability of 45%. This is the market expectation, which will support the logic of slowing inflation and is unlikely to change the market's view that the Federal Reserve will pause rate hikes in September. Although this will be positive, as the market shifts its focus to the central bank meeting at Jackson Hole at the end of this month, the market will further seek confirmation of the Federal Reserve's rate hike intentions. The S&amp;P 500 index may experience a slight increase of 0.25% to 0.5%.
If the overall MoM CPI growth rate is between 0.1% and 0.2%, with a probability of about 25%. This will reinforce the logic of slowing inflation, and investors may believe that the Federal Reserve may be closer to announcing &#34;mission accomplished&#34; on inflation, as the three-month trend will push the annualized inflation rate down to about 2%. The result of &#34;mission accomplished&#34; could mean that rate cuts may occur earlier than expected. Although it may still be too early to say, it is indeed a possibility.
The S&amp;P 500 index may rise by 1% to 1.5%.
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Overall CPI growth is below 0.1%. This is another low-probability event, with a probability of only 2.5%. If this situation occurs and we even see a negative MoM CPI growth, it will boost market confidence and may trigger a significant increase in the stock market, especially in technology and cyclical stocks. The S&amp;P 500 index could surge by 1.5% to 2%.
Mike Feroli, Chief Economist at JPMorgan, predicts a MoM increase of 0.2% in CPI, in line with mainstream Wall Street expectations. He expects the core MoM CPI growth rate to be 0.17%, slightly lower than Wall Street's 0.2%. Specifically:
Our team believes that US CPI will increase by 0.2% MoM in July and 3.3% YoY. We estimate that core CPI will rise by 0.17% MoM, similar to the increase in June, with a YoY growth of 4.7%. Additionally, we expect energy CPI to rise by 0.5% MoM in July, and food CPI to increase by 0.1% MoM, marking the third consecutive small increase.
In terms of core CPI components, we believe that housing costs will continue to drive overall inflation, despite a recent slowdown in rental inflation. We predict a 0.48% MoM increase in rental prices in July, while owner's equivalent rent will rise by 0.46% MoM. We also forecast a 0.3% MoM increase in clothing prices in July. These factors will contribute to higher core inflation.
Other core CPI components are expected to soften. Healthcare prices have remained almost unchanged in recent months, and we do not expect any changes in this category in July. Communication prices have been declining recently, and we anticipate this trend to continue in July with a 0.3% MoM decrease.
Hotel accommodation prices have been fluctuating significantly, but based on industry data, we expect a 0.8% MoM decrease in July following a 2.0% MoM decrease in June. We also expect another decline in airfare prices, leading to a 4.7% decrease in the public transportation price index for July. Industry data also indicates a recent decline in car prices, and we predict a 0.2% MoM decrease in new car prices and a 1.7% decrease in used car prices in July.
Regarding July CPI data, Goldman Sachs expects the MoM increase in core CPI to be lower than market expectations at 0.15%, and the YoY growth rate to fall to 4.66%, below the market's general expectation of 4.8%. The bank predicts:
A 3.0% MoM decrease in used car prices and a 0.3% MoM decrease in new car prices in July, reflecting a decline in used car prices and an increase in promotional incentives by car dealers.
Seasonal factors in July will put pressure on clothing and accommodation prices.
As the gap between new leases and long-term leases continues to narrow, housing inflation will remain at its current level, with a 0.44% MoM increase in rental prices and a 0.47% MoM increase in owner's equivalent rent.
Looking ahead, Goldman Sachs expects the year-on-year growth rate of core CPI to remain within the range of 0.2-0.3% in the coming months, reflecting the impact of continued slowdown in labor demand, deceleration in housing inflation, decline in used car prices, and moderation in non-housing services inflation.
Goldman Sachs trader Brandon Brown believes:
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Given Powell's emphasis on slowing down the pace of rate hikes after the June meeting, we believe the threshold for resuming consecutive rate hikes is high. We think the Fed's decision on whether to hike rates will be determined at the September meeting, with a bias towards a hawkish stance, meaning they will keep rates unchanged or hike them, but not cut them in the short term, and will continue to rely on data for decision-making. Based on our estimates, if core CPI increases by 0.3% or more on a month-on-month basis, the Fed will consider a rate hike in September. If Thursday's core CPI MoM growth rate is 0.2%, in line with market expectations, then the Fed will keep rates unchanged in September and may also skip a rate hike at the November meeting.
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Morgan Stanley predicts that there is a nearly 50% chance that the US CPI data on Thursday will meet expectations, which may lead to a slight increase in the US stock market. However, Goldman Sachs traders believe that if the MoM growth rate of core CPI is 0.2%, in line with expectations, the Federal Reserve will not raise interest rates in September and may also refrain from doing so at the November meeting. However, if this data reaches 0.3%, the market should be prepared for a rate hike by the Federal Reserve in September.

The heavyweight CPI of the United States is coming, which serves as the "trading guide" for Wall Street's major banks.