This CPI REPORT Could TRIGGER a Rate HIKE...

[00:00:00] Speaker 1: on wednesday morning at 8 30 a.m wall street time one government report drops that will decide whether this market gets relief or the rate hike story officially comes roaring back and nobody's telling you what number to actually watch for by the end of this video you will know exactly what a hot print looks like what a cool print looks like and what each scenario means for your portfolio heading into the most watched fed meeting in decades before we get ways deep if you like this type of content please click like and consider subscribing it's really important to be in the know and this is how you do it okay wednesday june 10 8 30 a.m wall street time the bureau of labor statistics drops the may consumer price index the cpi this is not a routine data release though this is arguably the single most consequential scheduled event between now and the federal reserve's june 16th and 17th fomc meeting the first meeting chaired by the new fed chair kevin warsh whatever prince wednesday morning lands directly on warsh's desk before he walks into the most watched central bank meeting in years my friends here's the backdrop april cpi came in at 3.8 percent year over year the highest reading since may 2023 the month over month number was six tenths of a percent core cpi which strips out food and energy for some strange reason came in at 2.8 percent year over year that was well above the fed's two percent target as you can probably already tell the headline number was driven almost entirely by well you're not going to be surprised to hear this energy cost it was up a staggering 17.9 year over year as disruptions to the shipping through the strait of hormuz have pushed oil and gasoline prices sharply higher since late february you know that story that is the scoreboard going into wednesday now here is how to decode the number when it drops the consensus expectation is for may headline cpi to print in a wide range with economists and prediction markets showing meaningful odds that year year over year the survey of professional forecasters has flagged that headline cpi could hit four percent or higher in q2 a cool number anything at or below 3.6 percent would give markets significant relief and narrow the rate hike window considerably a hot number which would be something like four percent or above would be the trigger that takes the december hike probability from probable to near certain before we go deeper i want you to make sure and understand something really critical this cpi print is not about what the fed does next week it's about what the fed says what they say next week and those two things can move markets very very differently the fed funds rate currently sits at three and a half to 3.75 percent as you probably know futures markets are pricing in a better than 99 chance of a hold at the june meeting and we probably already know that too but and this is really critical my friends futures markets are also now pricing roughly 70 percent odds of at least one hike one rate hike by december that's according to the cme's fed watch tool that number jumped significantly after friday's blowout jobs report and the language in june statement or the dot plot that endorses the hawkish narrative will hit treasury yields and compress stock multiples trust me the 10 year is already above 454 the 30 year is already again above five percent a hot cpi print wednesday pushes those higher and you can quote me on that here's the hidden layer almost nobody in the mainstream cpi preview is actually discussing everyone is focused on the headline year over year number but the more important data point on wednesday is the month over month core cpi reading here's why energy prices are the reason headline cpi is elevated and the market has already priced in the iran war energy premium everyone knows about that energy disruptions are a supply shock they are not a demand driven inflation story here's the thing the fed cannot cure a supply shock by raising rates you can't unclog the straight of her moose with a rate hike what the fed can influence is demand driven inflation wages housing services and that is exactly what core cpi actually measures of course cpi comes in hot on on wednesday say four tenths of a percent or something or higher month over month that tells you something far more alarming it tells you the inflation story has spread beyond energy that is embedding itself in services and shelter that is the number that would actually justify i dare say it a rate hike because at that point the fed is no longer fighting a war it cannot win it is fighting the kind of inflation its tools are actually designed to address so here is the shadow data that almost no one's covering you know i love the shadow data the cleveland feds inflation now casting model which uses real-time data to project the cpi print before it drops has been tracking may cpi in a range that would represent a modest deceleration from april's 3.8 percent used vehicle prices a persistent disinflationary forces cycle continue to fall through may according to the to the manheim used vehicle value index you should check that out it's pretty interesting if those offsets hold in wednesday's print headline cpi may actually surprise to the downside even with energy elevated and a downside surprise heading into the june fomc meeting would be a very different conversation than what the market's currently positioned for look i have been doing this a pretty long time i gotta say and some of the most violent market moves happen not when a number is bad but when it surprises in either direction against a very one-sided consensus right now the market is positioned for the hot scenario and it's very focused on that a cool print on wednesday could catch a lot of people leaning in the wrong direction i'm not telling you which way it goes i'm telling you to be ready for both before 8 30 a.m wednesday morning because by 8 31 the market will have already decided let me give you the decision tree here the basic one at least scenario one may cpi prints at four percent or higher or above that is the hot scenario treasury yield spike the 10-year pushes toward 4.7 or higher equity multiples compressed that's not good the dollar strengthens warsh walks into his first fomc meeting with enormous pressure to use hawkish language or face accusations that the fed will have to serve once again the december rate hike probability climbs well above 70 percent that's the scenario that validates friday's sell-off and extends it even further okay let's move to scenario two scenario two is where may cpi prints in the 3.4 to 3.6 range that is the cool scenario markets exhale treasuries rally the equity market bounces back from last week's weakness wash gets some breathing room at his first meeting but he still walks in with inflation above target employment strong and a market watching him very very closely the cool scenario doesn't solve the fed's problem at all it just gives it a smaller fire to manage okay on to scenario three and this is the one i want you to think about most carefully is a split print headline hot because of energy core soft because demand side pressures are not accelerating that's the most nuanced outcome and the one that creates the most volatile volatility in the treasury markets because the bulls will grab the soft core and the bears will grab the hot headline the result is a market that swings violently in both directions within the first 30 minutes of the session now here is the bottom line for your portfolio going into wednesday the 10-year treasury is above 454 the 30-year is above five percent again mortgage rates are now at 6.48 these levels are not accommodative the bond market is already tightening for the fed what the fed needs to decide is whether to endorse that tightening with language or resist it wednesday cpi print is the deciding vote on which conversation wash walks into next tuesday my honest take and i have said this for months now is that energy is the driver and energy has been driven by a supply shock that the fed simply cannot fix the most likely outcome on wednesday is a headline that looks elevated but a core number that gives the fed just enough cover to hold and sound measured but most likely that's what i'm saying it's not certain that's just likely and when the stakes are this high going to wash's first meeting certain is the only word that actually matters i'll be here covering the numbers in real time wednesday morning and you'll hear them from us first as you always do now for your truth bomb for today the cpi print wednesday morning is not just an inflation report it is the permission slip that decides whether wash's first fed meeting is a measured hold or a market moving pivot and the number that matters most is not the headline remember that it's what happens to the core my friends join me every day for wall street truth bombs where i drop them right here before the market figures them out