On Thursday of this week, the US Bureau of Labor Statistics will release inflation data for June, and the market is expected to move closer to the Federal Reserve's target. Wall Street expects core CPI (excluding volatile food and energy) to rise by the same rate as May's 3.4% year on year; rising for the second consecutive month by 0.2% month on month, and is expected to achieve the smallest consecutive two-month increase since August last year. The overall CPI is expected to decrease from 3.3% in May to a record low of 3.1% in the past five months with a small increase of 0.1% compared to the previous value of 0%.

JPMorgan traders have categorized this week's US CPI report into six possible scenarios and predicted how the S&P 500 index will react to it.

Scenario 1: CPI rose 0.15%-0.2% month on month, probability 35%

In this scenario, JPMorgan traders expect the S&P 500 index to rise by 0.5%-1% because it would make the market call for a September rate cut by the Federal Reserve very loud. One key factor is whether the cooling down of inflation can be attributed to housing prices, because this area is one of the important reasons for the stickiness of inflation, and any substantial cooling down of housing prices will be welcomed and may indicate further cooling down of inflation.

Scenario 2: CPI rose 0.2%-0.25% month on month, probability 30%

JPMorgan believes that whether it is 0.2% or 0.25% is important for the initial market reaction, because rounding 0.25% to 0.3% might lead to a negative initial market reaction, while 0.2% might be regarded as positive. In this scenario, JPMorgan predicts that the S&P 500 index will rise by 0.25%-0.75%.

Scenario 3: CPI rose 0.25%-0.3% month on month, probability 15%

Under this scenario, the S&P 500 index is expected to fall by 0.75%-1.25%, because such a report may show an increase in inflation in the housing category.

Scenario 4: CPI rose 0.1%-0.15% month on month, probability 15%

Investors like this result, because it may indicate that the cooling down of commodity inflation is accelerating. In this scenario, the S&P 500 index will rise by 1%-1.5%.

Scenario 5: CPI rose by more than 0.3% month on month, probability 2.5%

JPMorgan traders believe that such a hot inflation report will cause a decline of 1.25%-2.5% in the S&P 500 index. This is the first tail risk scenario, which means that the process of reversing the initial commodity inflation cooling down may be seen, thus pushing up monthly inflation data. Depending on the specific CPI data, coupled with weak growth data last week, the best-case scenario for the market is likely to turn to a recession narrative, while the worst-case scenario is a stagflation narrative.

Scenario 6: CPI rose less than 0.1% month on month, probability 2.5%

This tail risk will push the S&P 500 index up by 1%-1.75%, and JPMorgan traders pointed out that this may even lead to a call for a rate cut in July.

Is the calm period of the US stock market coming to an end?

JPMorgan trading department reminds investors to be prepared for the volatile fluctuations in the US stock market caused by the CPI report this week after a long period of calm.

Andrew Tyler, the head of market information at JPMorgan's trading department in the United States, said:

The price of at-the-money straddle options due on Thursday indicates that the options market is betting on a fluctuation of up to 0.9% in the S&P 500 index by Thursday.

The latest US CPI report will be released before the pre-market trading of US stocks on Thursday, and the report may cause a market anomaly fluctuation if traders bet on the slowing of inflation will push the Federal Reserve to cut rates twice this year.

Several former members of the Federal Reserve believe that September is an appropriate time to cut interest rates. Considering this, we are still bullish tactically, but our confidence has slightly decreased.

Editor/Somer