August U.S. CPI report is due at 7:30 am CT. Expectations are for Core CPI to remain steady

E-mini S&P (September) / E-mini NQ (September)

S&P, yesterday’s close: Settled 5504.00, up 24.50

NQ, yesterday’s close: Settled at 18,864.00, up 171.75

The August U.S. CPI report is due at 7:30 am CT. Expectations are for Core CPI to remain steady at +0.2% m/m and +3.2% y/y. Headline CPI is also expected to remain steady m/m at +0.2%, but drop to +2.5% y/y, which would be the lowest since March 2021 due to a spike in base comparison a year ago. 

The top of news argument is whether the Federal Reserve will cut 25bps next week or front load cuts with a 50bps surprise. Currently, the committee is expected to hike rates by 25bps next Wednesday with a 73% probability, while the remainder leans on a 50bps cut. Through year end, they are expected to cut rates by 100bps with a 90.7% probability. At Jackson Hole last month, Fed Chair Powell emphasized a labor-dependent Fed. Does this mean today’s number will have little impact? Yesterday, we noticed the below:

The wind sure has shifted. Is anyone talking about tomorrow’s CPI report? Yes, the Federal Reserve has gone from an inflation-dependent policy, now that Core PCE, their preferred inflation indicator, has been below 3% for eight straight months, to a labor-dependent policy. This means labor is the committee’s focus, and in Fed Chair Powell’s words, “further deterioration of the labor market is unwelcomed.” The trajectory of the labor market is clear after August's job growth was released last Friday, and there have been continuous negative revisions. However, markets like to fool the greatest number of participants, and although we are not sitting here expecting a hot read on tomorrow’s CPI, we must ask ourselves what would fool the greatest number of market participants.

Price action has been buoyant to start the week, and the most positive factor has been a strong final hour. Still, there is significant overhead resistance aligning with the high volume ranges from last week. As we noted here yesterday, “After last Tuesday’s close, the most volume traded in the E-mini S&P at 5522-5525, and this leads into major three-star resistance at 5528.25-5532.50. This tells us that a close above here is needed to begin repairing the damage from last week. Similarly, the most volume in the E-mini NQ traded at 18,945 and major three-star resistance comes in at… 

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