US CPI Preview: An increase in core of 0.4% MoM or more could mean chaos and a stronger Dollar – SocGen

Economists at Société Générale sums up the importance of today’s July inflation data for markets. 

One small step for CPI, a big leap for the Fed?

We forecast a rise in core of 0.3% MoM, an acceleration from +0.2% in June. Not a disaster, but not ideal, and not what a data-dependent Fed would have in mind. This could help yields to make up ground lost during the flurry of risk aversion earlier this week. 

An increase of +0.4% or more could potentially mean chaos, potentially including hawkish repricing of the Fed, Treasuries (and Bunds) selling off, paying in swaps, risk-off in stocks/credit/high beta FX, and a stronger Dollar. 

An increase of 0.2% or less would be the Goldilocks scenario: risk on in stocks and FX, and bull flattening in 2s/10s.

See – US CPI Preview: Forecasts from 10 major banks, monthly pace should hold at 0.2%