I was going to write a more formal primer on the blog for this but never found the time and it’s not going to be as important for policy as you might think… here’s why.
Basically the Fed is on track to taper regardless of todays number. If the number is big, they’ll taper anyway, if the number is small, they probably breathe a sigh of relief and taper anyway.
The main implications will likely come from the devils in the detail. If there is evidence of more persistent inflationary pressures, I would have a lot more concern about when we will see the first rate hikes. This could be pretty bad for equities.
If, however, most of the pressure is still coming from transitory factors, like natural gas or cad prices, then there is likely to be less pressure on equities.
What’s expected?
Well for the standard CPI measure it’s expected to be in-line with last month at 5.3% YoY.
Core is a similar story: in-line with august at 4%
Core is the measure which the fed cares about, and obviously the MoM are also important too.
What’s the trade?
It’s the USD all the way for me. If the number beats (on a wide number of metrics) get long, if we see a big miss, get short.
What else is going on?
We’ve seen yesterday that Apple is scaling back iPhone 13 production due to chip shortages... yet another company which is seeing pain and this is the company which supposedly has the best deals with manufacturers... not even Apple is immune.
The other thing to watch is JPM earnings - they’ll be released before the market open. Sure we have some other banks reporting too, but last time (don’t quote me on this) I think JPM was one of the first and basically served as a barometer for the rest. Black rock also reporting today. Other earnings of interest include Delta Airline - let’s see how well some of these pandemic recovery sectors are actually doing!
Clearly though, the main focus will be CPI, so watch out for that most of all... at 13:30 UKT. Happy Trading!
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