CPI Shocktober to drive markets to new local price lows?: The MUFG Global Markets Podcast

In today’s episode, MUFG Head of U.S. Macro Strategy George Goncalves marks to market what he believes was another head-fake move at the start of Q4 trading. The roundtrip price action that we have seen in the last week or so of trading in both bonds and stocks – which saw massive rallies unwind into this new trading week – reminds us that many investors are still enamored with the buy-the-dip approach versus selling-the-rips stance that we have been advocating for a while, which are more common trading strategies in bear markets. We go into what to expect from the FOMC minutes and the upcoming inflation reports. Given the consistency of Fed speakers of late, we would be shocked if they signal anything specific to what would get them to pivot before seeing inflation clearly heading lower. Economists expect another elevated inflation reading and even if it comes in weaker, we do not believe one data print or two would get the Fed to deviate from its hawkish goal of front-loading as many hikes as possible in 2022. Whereas a high CPI print runs the risk of shocking us into a bigger risk-off. That would be an issue as markets are on their backfoot and hugging multi-week trend supports, especially in stocks, but even bonds are at risk of a push to 4% across all curve points.

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