EQUITY & MACRO STRATEGY BRIEFING: AUGUST CPI PREVIEW

Source Data: JPM Economics (Michael Feroli) & JPM US Market Intelligence Desk

THE TAKE: CPI IS THE FED’S MAKE-OR-BREAK GATEKEEPER

Today's CPI release serves as the definitive binary catalyst for the September 16 FOMC rate decision. Rates markets are currently pricing a ~63% probability of a 25 bps rate hike, making the core monthly inflation metric the key arbiter between a Hold / Hawkish Hold (allowing equities to re-lever) vs. a Hike (which risks accelerating rate-volatility and pushing October/December hike expectations higher from current ~27% and ~54% levels).

Options expiring today are pricing a ~1.0% straddle move in the SPX, while positioning data indicates that Hedge Funds have been actively adding gross exposure (+1.3z weekly increase). With light net positioning, a benign core print provides significant headroom for a momentum-driven squeeze.

JPM MARKET INTEL: CORE MOM SCENARIO ANALYSIS

The Desk’s tactical framework centers on the 0.2% vs. 0.3% rounded Core MoM threshold:

Core MoM Print

Desk Probability

Projected 1-Day SPX Impact

Macro & Policy Reaction

> +0.30%

10.0%

SPX Declines -1.5% to -2.5%

Hot Tail: Locks in September hike; spikes Oct/Dec rate hike expectations.

+0.25% to +0.30%

25.0%

SPX Declines -0.25% to -1.0%

Hawkish Tilt: Leaves Sep hike live; rate volatility keeps pressure on equities.

+0.20% to +0.25%

30.0% (Base Case)

SPX Gains +0.50% to +1.25%

Feroli Target: Supports "Hold" thesis; unlocks re-grossing across Tech & Cyclicals.

+0.15% to +0.20%

25.0%

SPX Gains +1.0% to +1.5%

Dovish Relief: Yields pull back sharply; short-covering rally across Momentum.

< +0.15%

10.0%

SPX Gains +1.5% to +2.0%

Cool Tail: Completely prices out Sep hike; powerful cross-asset re-risking.

FEROLI HOUSE FORECAST vs. CONSENSUS

  • Headline CPI MoM: +0.38% (vs. 0.4% Survey / +0.1% Prior) $\rightarrow$ 3.4% YoY (vs. 3.4% Survey / 3.4% Prior)

  • Core CPI MoM: +0.21% (vs. 0.2% Survey / +0.2% Prior) $\rightarrow$ 2.4% YoY (vs. 2.4% Survey / 2.5% Prior)

GRANULAR CATEGORY BREAKDOWN (JPM ECONOMICS)

  1. Energy (+2.5% MoM): Main engine behind headline acceleration, driven by a +4.2% MoM surge in motor fuel prices.

  2. Food (+0.2% MoM): Moderating YoY to 2.7% (down from 2.9%), as weekly Circana data shows agricultural commodity spikes have yet to pass through to retail.

  3. Recreation Commodities (+0.3% MoM): Boosted by Microsoft raising Xbox prices by 25% on August 1 (yielding a ~0.2% direct lift to the overall category given its ~23% market share and ~3% weight within recreation hardware).

  4. Shelter & Housing (Rent & OER): Soft readings expected to persist. Leading indicators like the Zillow Observed Rent Index (2.4% YoY) remain comfortably below CPI Rent (2.9% YoY) and OER (3.2% YoY).

  5. Airfares & Travel: Airfares remain elevated (+26–27% YoY run-rate), supported by Kayak weekly tracking data showing domestic flights up ~34% YoY. Lodging away from home expected flat post-World Cup normalization.

TACTICAL PLAYBOOK & RISK/REWARD

  • Stance: Tactically Neutral into the Print $\rightarrow$ Bullish on a $\le$0.25% Print.

  • Sector Expressions: If Core prints $\le 0.25\%$, look for Tech, High-Beta Momentum, and Cyclicals (Large Banks / Discretionary) to lead a squeeze higher as HF gross exposure re-levers into a dovish rate setup.