Inside Markets — CPI Preview

It seems unlikely that tomorrow’s CPI print would discourage the Fed from cutting rates by another 25bp next week given lingering uncertainty around the health of labor markets. The focus remains on core CPI where consensus is looking for +0.3% MoM and +3.3% YoY.  A core CPI print above +0.40% (less than 5% probability) would move the needle on Fed expectations, take bond yields higher and generate immediate downside in the SPX in the 1-2.5% range.  A core CPI number between 0.35%-0.40% would cause bond yields to rise, generate a ~50bp pullback in the SPX but still unlikely to discourage the Fed from cutting in our view.  And a hot core CPI print in the 0.35-0.40% range without some amount of housing price deflation will likely be dismissed by markets.

US equities are pulling back from extreme overbought levels, but unlikely to reach oversold status before year-end.  The next two weeks are usually the busiest of the year in terms of stock buyback activity with authorizations at an all-time record.