CPI Scenarios | NASDAQ REBALANCE | Bet Big on the Bank Of Japan🚨

CPI Scenarios | NASDAQ REBALANCE | Bet Big on the Bank Of Japan🚨

So, right now, the Federal Reserve Fund futures (at the time of writing) are showing that there's over a 90% chance of the Fed raising rates by 0.25% on July 26. Some high odds.

Let's discuss how the SPX500 might react to the monthly Core inflation rate. Just so you know, the market is currently expecting a pretty small movement, around 0.70%, through tomorrow's close. According to an analyst at Goldman Sachs, if I understood it well

  1. If inflation is higher than 0.5%, it's not great news. The SPX500 could drop at least 2% (not super likely, though, only a 5% chance).
  2. If inflation is between 0.4% - 0.5%, the SPX500 might fall somewhere between 1% - 2% (a bit more likely, with a 10% chance).
  3. If inflation is between 0.3% - 0.39%, we might see the SPX500 drop anywhere from 0% - 1% (this is pretty likely, with a 30% chance).
  4. If inflation is between 0.2% - 0.29%, we could see the SPX500 rise slightly, from 0% to 1% (even more likely, with a 35% chance).
  5. If inflation is between 0.1% - 0.19%, the SPX500 will jump by at least 1% (less likely, but still possible, with a 15% chance).
  6. If inflation is less than 0.1%, the S&P could take off, going up at least 1.75% (but this is pretty unlikely, with only a 5% chance).
  • Disclaimer: Time is based on Amsterdam time
  • [5% chance] Headline YoY prints 3.7% or more: This would be an uncomfortable scenario because that would imply that inflation is seriously picking up. If that's the case, we will probably see a rise in bond yields and volatility. That can follow up with a sell-off in the equities market. It wouldn't be a surprise if the Federal Reserve hikes rates by another 50 bps in July and some more hike rates later this year. The SPX500 may likely fall by around 2% or 2.5%
  • [15% chance] If inflation is between 3.3 - 3.6%: That wouldn't do much to calm worries about the Federal Reserve ending rate hikes soon. Plus, rising energy prices this summer and still robust consumer spending could cast doubt on inflation forecasts. That would push the bond market to expect more rate hikes. The SPX500 may drop 1% - 1.25%
  • [45% chance] If inflation is between 3.0% - 3.2%: This is what most people expect to happen, although some folks are whispering about a sub-3% inflation. This would represent a substantial decrease in inflation, supporting the narrative that inflation is slowing down. But it's unlikely to stop the Federal Reserve from raising rates by 0.25% in July. It might, however, stop further rate hikes for the rest of the year. The SPX500 might jump by 0.50% - 0.75%
  • [25% chance] If inflation is between 2.8% - 2.9%: The big drop in inflation would be the largest in this cycle. Given recent trends, this could reset expectations for inflation to stay below 3%. If that happens, we could see fewer expectations for rate hikes in July. This might lead to the Fed doing another "hawkish skip," particularly if inflation normalizes before we feel the full effects of the tightening cycle. We could even see the end of the tightening cycle in late August. This would be a "Goldilocks" scenario - growth without inflation, just like in pre-COVID times. The SPX500 might jump by 1.5% - 1.75%
  • [10% chance] If inflation is 2.7% or lower: This is a pretty unlikely but interesting scenario. Real-time inflation indicators suggest that headline numbers might even be below 2.5%. If this happens, we'd probably see the July rate hike taken off the table, and we might even see rate cuts in late 2023. The Fed could then focus more on full employment and financial stability, both of which would benefit from lower rates. This could lead to a bull market for both stocks and bonds. The SPX might even jump by 2.5% - 3%

From what I understand, JP Morgan thinks it's more probable that we'll see a "dovish" situation, meaning lower inflation.

Now if the inflation number comes out lower than expected, it could be a signal for the Federal Reserve to end their rate hikes or at least pause. If that happens, we're in a "Goldilocks" scenario.

You know, from the fairy tale, the porridge isn't too hot or cold, but just right. It's a mix of economic growth, earnings growth, and inflation that's a bit more normalized.

But the biggest thing that could mess up this "just-right" scenario is a sudden jump in commodity prices like oil, metals, grains, etc. That would especially be true if China decides to ramp up its economy by pumping in more money (fiscal stimulus).

China's a big player in the commodities market, so what it does can greatly affect prices globally. If China decides to go this route, this "Goldilocks" scenario could go out of the window real quickly.


Yesterday was all about 'squeezy action.' That's when prices rise fast because investors betting against certain stocks (going short) must repurchase them to cover their bets.

This week, many retail-centric stuff is showing up as winners, like unprofitable tech, most short-rolling, low-profit Russell 2000 companies, and unprofitable RTY.

NASDAQ is set to adjust its indices on July 24 in a way that is expected to penalize major megacorporations

Rebalance due to 'magnificent 7' dominance


A lot is going on right now (short-sellers feeling the squeeze from higher rates last week, the Nasdaq rebalancing, CPI data due tomorrow, the start of the earnings preview season, and so on). The big question everyone's asking is: how long will this shift towards smaller market cap stocks last, especially with earnings season right around the corner?

And speaking of earnings, if we look at recent trends, it seems Tech investors are thinking, "The bigger the company, the better the earnings will be."

To give you an idea, It was surprising when checking out a chart of Google's performance compared to the S&P - Google's been doing worse than the S&P for the past 6 weeks. Other big tech stocks like Facebook, Amazon, Apple, and Microsoft have similar trends.

As for today's trading, a few things stood out. The semiconductor companies (like LRCX and AMAT) were weak, while Etsy had its best day of the year. AMD was down about 3%, but some smaller internet companies (like Redfin, Roku, Snapchat, and Unity) were strong. So there's definitely a lot to keep an eye on.

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Japanese Yen

There's a buzz about the Bank of Japan (BOJ) possibly changing its Yield Curve Control (YCC). Because of this, the USD to Japanese Yen (JPY) rate has dropped 3% in just a few days, which is one of the fastest drops we've seen this year.

Even crazier, this drop isn't aligning with rate differences like it normally would. This has led to a ton of people wanting to place bets on this event in the options market.

Right now, a 1.5% gap is already priced in, and it looks like it could reach 2% as we get closer to the BOJ meeting date. That's pretty high compared to the 0.9% from the last BOJ meeting.

Why the hype? Well, even the typically