Critical Inflation Report *just* FLIPPED [Watch Before Thursday]

boy you all better buckle up because

inflation expectations have just shifted

for the CPI data release which is in

less than two days from now which is

kind of remarkable January 12th is when

we're going to be seeing the next

inflation release I'll of course be live

streaming it but I need to tell you a

warning up front inflation expectations

have shifted so what we saw earlier

about two weeks ago was that inflation

expectations went from a headline of 6.7

to 6.5 month over month was expected to

come in at .0 and core coming in at 0.3

so the headline going from 6.7 to 6.5

and uh and and that sort of reduction

down in inflation being clear but this

just changed again this morning this

number right here headline month over

month

for the first time in this crazy cycle

is now expected to come in at not just

point zero not 0.1 but negative 0.1

that's the expectation now now I

actually get nervous when we have low

expectations like that as excited as I

am that we're seeing those expectations

move down rather than up and we're going

to talk about how the market might react

to those in just a moment

what are the things that I hate is when

the surveys are so low it makes it

harder to beat the surveys to the

downside right I mean think about it if

the surveys were 0.1 and we got negative

point one everybody'd be having a party

if the survey is point negative one and

we actually get zero everyone's

disappointed even though that's better

than me than coming in at point one

positive right so the whole expectations

thing with the market is just nutso and

in the short term beating these or

missing these really matters a lot in

fact let's look at how the market might

react based on jpmorgan's opinion that's

this uh actually let's start with this

chart right here so if we get a headline

read of above

6.6 now remember the current consensus

is 6.5 so now they're suggesting if we

get a print above 6.6 one of the better

place would be shorting the JPM

cyclicals versus defensive index and

they maybe see the S P 500 down about

2.5 percent they see a 6.6 read from the

7.1 percent where we are now as a

bearish outcome even though that trend

is nice it's one of those Trends where

the Federal Reserve can come out and say

well see we still have more to do in

fact Bowman they're doing the summary of

her right now here on CNBC I could just

give you the summary basically Bowman's

like the usual talk she's one of the

newer members over at the FED now and

she's doing her usual we'll basically

doing the usual mouthpiece uh that we

see Federal Reserve officials tell us

and that is we're going to continue

hiking so in other words probably 0.25

rather than zero for the next cycle

that's important I'll explain that in a

moment

uh we are going to keep rates higher for

longer so don't think we're going to cut

rates too darn fast uh and we still have

a lot of work to do those were some of

the the key things that she had to say

you know Jamie dimon came out this

morning suggesting hey there's like a 50

chance the FED ends up having to run up

to six percent on the FED funds rate the

market doesn't believe this though as

far as the market can throw it which

given that the market can't throw uh

except maybe make us throw up is not

very far see take a look at this this is

the Fed Futures measure of expectations

for how much the FED is likely to hike

at the end of January first day of

February and you can see we're sitting

at a 21 probability of actually staying

at zero hike and a 79 probability of us

getting a 25 basis point hike so clearly

the Federal Reserve is noticing this and

they're sending their minions out to the

market to CNBC or whatever to say we

we've got more hikes to do because the

FED ideally wants this higher and this

lower they don't want the market

starting to price in zero because it

eases Financial conditions too much

although I will say if you go over to

bonds right here they jump today 11

basis points on the 10-year kind of wild

anyway let's go back over here and let's

look at these different scenarios play

out so

they also mention here if prints come in

above 6.8 then think you're catching a

tail event that would in other words a

tail event is something that is much

less likely to happen right so generally

when you think about statistics you want

to think about this this bell curve that

looks somewhat like this uh right side

tail event and then a left side tail

event crazy shot to the downside is a

left side tail risk a crazy shot to the

upside is a right side tail risk and so

generally we would expect that the

result will be somewhere within one to

two standard deviations of this so sort

of one standard deviation or two

standard deviations out once you start

getting further out then you start

getting into those like crazy rare like

three sigma events right like two

deviations out as a two Sigma event who

remembers that from Vlad in the Robin

Hood days anyway let's keep looking at

some of the expectations here okay oh

and I do want to remind you of as a

short notice thing we opened up few

flights that we're doing this week

foreshadowing me we're we're going to be

traveling the next three days I'll still

be covering CPA live but if you want to

join those sort of last minute Wednesday

Thursday Friday we've got some space

available you're welcome to join

otherwise we're booked out uh until I

think mid-February uh and then we're

filling up February March and starting

fill up April so if you want to come

Shadow me on the plane as we go look at

real estate link down below okay so

let's keep going over here so then if we

get prints between 6.4 and 6 6 remember

again consensus being 6'5 right over

here this is a bullish outcome so this

would be in line a drop from 7.1 bullish

outcome and think this outcome produces

a decline in volatility across assets

well that would be nice although the VIX

Index is pretty low but you you're just

seeing these crazy moves in stocks I

mean just look at for example uh Tesla

you know yesterday Tesla was up like

eight or nine percent closes the day up

5.9 now it's down three percent the

volatility is crazy uh anyway given the

moves ahead of CPI print the initial

spike is likely to fade through the

season look for Tech to lead in this

scenario okay cool that they think is a

65 percentage Point possibility that

we're going to see something pretty much

in line

now they do think there's also this

chance of shooting to the downside 6.4

percent and this would they they think

you would have to really like materially

Miss to the downside they see this as as

relatively a low chance 20 chance of

being anything below 6.4 really a left

side tail risk to see something come in

even below six percent not likely uh so

more they actually say here stated

differently the largest change comes if

the market reprices the fed's March

meeting as a pause which seems likely

only if the CPI prints below 4.5 to 5 uh

yeah if we're not seeing something

coming that low uh the outcome produces

a three to three and a half percent

rally in the S P 500 anything under 6.2

would be their version of a tail event

like a big shock to the downside Miss

which would be great but let's look at

those expectations that of 20

probability so they actually see the

odds of a bullish Green Market to

tomorrow if you add these odds together

here at 85 percent

now let's hop over here and look at the

March meeting which before the February

meeting we're going to have one CPI

report we'll also have another

employment cost index report on the 30th

I believe it is or the 31st of the month

we'll also have a bunch of earnings for

companies that are going to go through

so we'll see those uh before the Feb 1

meeting but before the March 15th

meeting we'll also get February's

inflation data and the March 15th data

oh this is quite interesting so look at

this this has the market pricing a 65

chance

that we are actually going to be at 225

basis point hikes so 65 chance 25.25 no

March pause and if we don't get that

March pause they actually have a 46

chance that we're sitting at 4.75 to 5

and that maybe that pause is actually

sitting in May so really to get that

pause moved up over here where uh you

know right now we're only pricing in a

16 chance for March following 25 over

here but then again uh there's still

this 21 chance the market sees that we

get a big Miss on CPI tomorrow uh not

tomorrow on on Thursday and uh in the

it's on the 12th and then the FED ends

up uh oh man uh fed ends up uh pausing

early I don't know about that but that

that would be quite fascinating let's

see what else we have in this JPM report

there are some interesting things in

here so here we've got the three month

average change in employment they really

show you how we've slowed the labor

force downshifting from in the first

half of the Year gaining about 440 000

jobs to now being closer to 366 in the

in Q3 and 247 and Q4 obviously we also

think that these numbers are vastly

overstated as people start taking on

multi-jobs

uh they did indicate that they actually

liked seeing a decline in the average

work week to 34.3 percent they see this

as an indicator that there's little

pent-up demand for more workers

which is potentially good for keeping

that inflation spiraled down or the odds

of an inflationary spiral down they do

reiterate though that the FED wants to

be very clear here Against The Narrative

of pausing or u-turning Too Soon even

though the market thinks this is going

to happen the FED in terms of being a

mouthpiece of of their plans does not

want to send that signal too soon this

is why I personally believe they're

probably going to have that very hard

face of of hiking on until they actually

decide to U-turn and that could end up

being too late but I think this the the

early lead-in signals for that potential

U-turn uh won't be coming too early the

fed's going to remain pretty anxious and

and tight for longer so probably at

least six more months which kind of

sucks but it is what it is then uh what

do we have over here we've got a global

Outlook scenarios

soft Landing being priced here at about

a 25 chance uh hikes after q1 this would

be bad uh with a hard Landing then

coming in 2024 so if they keep hiking

after q1 which would be into May oh uh

that's probably your hard Landing

scenario uh and uh and and then that

would maybe be around uh 30 probability

then uh you do potentially have this

trading sideways going on with a

recession in late 2023 about a 35 chance

here sitting uh sitting in a late 2023

recession or just straight up recession

in the first half 15 chance so it does

seem like statistically based on these

numbers put together by JPM

we're probably looking at some kind of

recession between

Q3 to Q2 so this would be Q3 2023 and

2024 and somewhere in there you would

probably have already conducted enough

damage to keep us in a recession but you

would expect some kind of U-turn from

the Federal Reserve within that range so

that could potentially mean that March

is the last 25 BP hike and then you sit

still may you sit still June right these

are all zeros and then once you realize

crap we're probably in a recessionary

environment maybe not even come July

right we keep seeing the zeros maybe

come September you actually start seeing

cuts no guarantees right I mean it's

also entirely possible that they just

continue going up and we actually

approach six percent rather than coming

down but it's all predicated on on what

CPI does and so far the expectations are

Rosy again though Rosy expectations has

a tendency of disappointing so the fact

that those expectations got revised to

negative point one uh I mean I know

that's exciting and a lot of folks were

excited when they saw that revision but

uh it actually personally makes me

nervous because again I would have

rather had the expectation be zero and

then get put one to the downside to the

negative right so who knows anyway thank

you so much for watching check out the

links down below for the programs I'm

building your wealth for uh shadowing me

and uh well cheers folks we'll see in

the next one goodbye