June CPI Report On Traders' Radar: Analysts Predict S&P 500 Move For Thursday Under Different Inflation Scenarios (CORRECTED)

Zinger Key Points
  • Powell said Tuesday it will be inappropriate to reduce rate until the Fed is confident inflation is sustainably moving to 2% target.
  • The comments did not alter the odds for the September meeting, with the futures market still pricing in a 73% chance of a rate cut.
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Editor’s note: The story has been updated to reflect that the CPI data is due on Thursday.

The all-important consumer price inflation report for June – one of the important reports due before the Federal Reserve’s July 30-31 monetary policy committee meeting – is expected on Thursday.

What Happened: Economists, on average, expect June’s headline monthly consumer price inflation rate at 0.1%, a slight tick up from unchanged prices in May. Annually, the CPI inflation may have slowed from 3.3% to 3.0%.

The core consumer price index, which strips off volatile food and energy prices, is expected to have risen 0.2% month-over-month and 3.4% year-over-year, essentially unchanged from corresponding May readings.

Inflation data is market-moving, given the implications it has for the Fed funds rate. Fed officials, including Chair Jerome Powell, haven’t yet declared victory on inflation despite the pricing pressure thawing from a 9%+ level in June 2022. That said, inflation continues to hold stubbornly above the central bank’s 2% threshold.

In prepared remarks, delivered as part of his semi-annual monetary policy testimony before Congress on Tuesday, Powell said, “We do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%.”

That said, the Fed chair clearly messaged that any change in policy stance hinges on incoming data – a position Fed officials have been maintaining for some time now. “The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” Powell said on Tuesday.

The comments did not alter the odds for the September meeting, with the futures market still pricing in a 73% chance of a rate cut.

See Also: Best Inflation Stocks

What’s Next: Traders have been discounting a downward rate move in September and this is one of the premises, along with the artificial intelligence technology, that has driven the stock market to dizzying heights.

The Nasdaq Composite Index and the S&P 500 Index have been notching record after record, while the 30-stock Dow Industrial Average has been the laggard.

Presenting all possible scenarios, JPMorgan’s trading desk flagged the likelihood of a move ranging from a negative 2.5% to a positive 1.75% for the S&P 500, according to the snapshot of the note shared by an X platform user.

Monthly headline inflationProbabilityS&P 500 Move
<0.10%2.50%+1.0% to +1.75%
0.10%-0.15%15%+1% to +1.5%
0.15%-0.20%35%+0.5% to +1%
0.20%-0.25%30%+0.25% to +0.75%
0.25%-0.30%15%-0.75% to -1.25%
>0.30%2.5%-1.25% to -2.50%

Energy prices rose in June amid supply concerns, with the WTI grade light-sweet crude advancing about 5.9% before ending the month at $81.54. The spotlight will be on the contentious shelter cost, which many argue is the reason behind inflation holding stubbornly high. Shelter costs account for 30-40% of the CPI.

The CPI basket includes rents and “owners' equivalent rents,” which estimate the amount a homeowner might charge if they rented out their own home. The OER component is considered a lagging indicator by many economists as it is the amount negotiated at the start of the lease, which may have been set well before that particular month.

Apart from the broader market impart, the report could also produce some volatility in Interest-rate sensitive sectors such as financial stocks, highly-leveraged companies and dividend-paying companies such as utilities, REITs and telecoms.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performances of stocks that are part of the S&P 500 Index, settled Tuesday’s session up 0.10% at $555.82, according to Benzinga Pro data.

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