Hi YXI friends,

Today we are going to preview tomorrow’s CPI. We break down what both the Headline CPI and Core CPI will look like if the data overshoots or undershoots. We also examine the key drivers of CPI to assess the balance of risks for tomorrow’s report.

In the second half of this report, we go through the yield curve, Treasury ETFs, Equity ETFs, Magnificent 7 valuations, Bitcoin, and Gold.

Content Sections:

1. CPI Preview

2. Yield Curve, Treasury ETFs, Equity ETFs, Mag-7 Valuations

3. Bitcoin and Gold

Premium Members Announcement

We have a webinar today at 4:15pm ET (8:15pm GMT) via Zoom. We will share the recordings of each session.

Today’s webinar will cover a preview of tomorrow’s CPI, the current FOMC expectations, updates on TLH, TLT, Bitcoin, and Gold.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Will CPI tomorrow undershoot?

Tomorrow’s CPI is the most important market event ahead of Jackson Hole. The market expects the Headline CPI to rise by 0.2% MoM and stays flat at 3% YoY. Core CPI is expected to rise 0.2% MoM and slows to 3.2% on a YoY basis.

If CPI comes in line with the estimates, this is what Headline and Core CPI trends look like:

Headline CPI decelerates to just 0.4% on a 3-month annualised basis, after printing 0, -0.1, 0.2 MoM growths. (3-month annualised simply means if we take the past 3 months MoM data and extrapolate to a 12-month period.)

Even if the data surprises on the upside to 0.3% MoM growth, we will only get a 0.8% 3-month annualised rate. But if CPI prints below expectation, e.g. 0.1 or 0, then the 3-month annualised rate will reach 0 or below (i.e. deflation). To me, the risk is therefore asymmetrical to the downside.

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