Will tonight's US CPI surprise? Morgan Stanley advises traders to bet on an unexpected drop in inflation
Morgan Stanley predicts that the CPI data to be released tonight may unexpectedly decline, with the swap market indicating a year-on-year increase of 2.4% for May CPI, lower than the expected 2.5%. The report points out that the dollar faces short-term downside risks, and historical data shows that when CPI unexpectedly declines, the dollar index usually falls. The market needs to pay attention to the impact of tariffs on core goods, and short-term inflation expectations may fall below long-term expectations. Investment should be cautious, and this article does not constitute personal investment advice
The market is holding its breath for the CPI data to be released tonight at 20:30, with Morgan Stanley predicting that inflation may unexpectedly decline.
According to news from the Chasing Wind Trading Desk, on June 10, Morgan Stanley interest rate strategist Aryaman Singh and his team released a research report stating that the swap market is indicating that the May CPI data will unexpectedly decline.
The report points out that the pricing in the swap market shows that the overall CPI in May is expected to grow by 2.4% year-on-year, lower than the 2.5% generally expected by Bloomberg economists; on a month-on-month basis, the swap market pricing indicates a CPI month-on-month growth rate of 0.13%, and a core CPI month-on-month growth rate of 0.23%, both lower than the Bloomberg consensus expectations of 0.2% and 0.3%.
It is worth noting that in the past eight CPI releases, the swap market successfully predicted the data trend in seven of them.
The report adds that the May CPI data will be crucial for understanding the initial impact of tariffs on core goods. If the impact of tariffs on core goods is milder than expected, it may become a driving factor for the decline in other economic data in May.
The Dollar Faces Short-Term Downside Risks
The report further states that over the past two years, whenever there has been an unexpected decline of one standard deviation in CPI data, the dollar index typically falls by about 0.4% within an hour after the data release.
Based on the current gap between swap market pricing and economists' expectations, there may be an unexpected decline of -0.62 standard deviations this time. Based on historical patterns, this means the dollar index may experience a short-term drop of 0.3% after the data release.
The report points out that the scale and timing of the impact of tariffs on prices are difficult to estimate accurately, which will be a major source of forecasting errors in the coming months.
The report specifically mentions that the current two-year inflation expectations are about 2.79%, exceeding the ten-year expectation of 2.48%—this inversion has persisted since last year's election. Therefore, the market should be prepared for a turning point where short-term inflation expectations fall below long-term expectations.
Risk Warning and Disclaimer
The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk
