After the latest non-farm employment report was released last week, Fed officials no longer seemed to consider the "dove" monetary policy stance. Before the release of the US September Consumer Price Index (CPI) on Thursday (20:30 Beijing time on Thursday), short-term speculators in the U.S. stock market faced greater risks. Statistics from JPMorgan show that CPI year-on-year data above 8.3% will pose a huge threat to the stock market. The latest data currently shows that the market's general expectation of the year-on-year CPI growth rate in September is 8.1%.
Zhitong Finance APP learned that the JPMorgan Chase analysis team led by Andrew Tyler wrote in a research note on Monday: "This feels like another day of a 5% decline." They pointed out that the S&P 500 index fell 4.3% on September 13, when inflation data in August was higher than general market expectations. Better than market expectations - arguably the worst case, and it is even more difficult for customers who seek to grasp the direction of the drastic market fluctuations caused by economic data.
CPI data has never been more significant in negative correlation with US stocks!
It is understood that JPMorgan Chase economists led by Mike Feroli predict that CPI will drop to 8.1% in September, consistent with the median forecast of analysts surveyed by Bloomberg . If the data is between 8.1% and 8.3%, the bank's trading team believes that a "buy force strike" market may occur, and the S&P 500 will fall 1.5%-2%.
There is no doubt that inflation data is having a crucial impact on U.S. stocks. Barclays strategists including Anshul Gupta and Stefano Pascale compared the performance of the S&P 500 with the top ten economic indicators such as monthly employment and quarterly GDP (GDP), and found that in the past 10 years, the U.S. stock market has never reacted to an economic indicator as negatively as it is today to CPI data.
In addition to the July CPI data report, the S&P 500 index fell significantly in most cases when the CPI data was released, because the Consumer Price Index (CPI) was mostly higher than market expectations.
After the recent market turmoil, the upcoming CPI data may provide a glimpse of the Fed's future path to currency tightening. Last week, the S&P 500 achieved its best two-day performance since April 2020, after weaker ISM manufacturing data and the drop in the number of JOLTs job openings in August to a new low since June 2021, triggering optimism that the Fed will no longer be so tough.
However, with a strong employment report confirming the view of some market observers that betting on the Fed's idea of adjusting monetary policy is entirely "wishful" investors, and with the fact that most Fed officials once again expressed their "hawkish" policy stance, the S&P 500 also plummeted after the non-farm data was released.
If the CPI data is below 7.9%, the S&P 500 is expected to rebound violently
"This week's CPI data will be the most important catalyst to influence the final decision of the Fed's interest rate meeting on November 2; at the same time, we believe that 75 basis points are basically a foregone conclusion, but Fed officials may lack consensus on the views of the next two meetings," wrote Tyler from JPMorgan Chase. He added that if inflation rate exceeds expectations again, it will prompt the bond market to reprice, pushing up the yield of US bond , thereby increasing the possibility of another significant hike in in December.
On the other hand, the analysis team said that any sign of weak inflation could trigger a violent rebound in the stock market, saying that if the CPI data is below 7.9%, the S&P 500 is "very likely" to rebound violently by 2% - 3%. This positive reaction may be even more obvious if the CPI falls more than 60 basis points in July. JPMorgan Chase also said that if the CPI data is "overheated", it will put US stocks at the risk of a plunge of 5%.
"There will be a call for the Federal Reserve's suspension/monetary policy shift that may appear even more 'deafening'," the analysis team wrote.
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