JPMorgan Chase: Don't bet on June CPI continuing to soar, there is an 80% probability that the data will be lower than expected.

According to the Zhongtong Finance and Economics APP, analysts from JPMorgan's sales and trading department suggest that traders hoping to profit from unexpected consumer inflation data on Wednesday should be prepared for lower-than-expected results.

While the general expectation for June's Consumer Price Index (CPI) is a year-on-year increase of 3.1%, there is a 4 in 5 chance that the data will be in line with or lower than expected. Under the same conditions, these results could boost the stock market.

In two distinct tail-risk scenarios, the team believes that if the CPI data shows market volatility, there is a 10% chance of inflation slowing significantly and the S&P 500 index surging. This possibility is twice as likely as the opposite scenario, where significant rebuilding of price pressure would cause stock market volatility.

The team predicts that a year-long slowdown in inflation will allow the Federal Reserve to relax its monetary tightening policy, which is a positive sign for the stock market.

"I believe this will bring the market closer to the 'golden girl,' which means economic growth, profit growth, and inflation normalization." "Although the bullish scenario does not require a pause or skip at the July Fed meeting, it certainly amplifies the upside potential."

The team's most likely scenario is a CPI increase between 3% and 3.2%, with the S&P 500 index rising between 0.5% and 0.75%. If the inflation rate reaches or falls below 2.7%, it is expected to trigger a minimum 2.5% increase in the benchmark stock index.

In recent years, the trajectory of inflation has become a focus of attention for Wall Street traders, especially after the Federal Reserve underestimated the stickiness of inflation pressure and then hastily raised interest rates at a pace not seen in decades.

Market volatility typically surges before and after the release of the 2022 CPI, but anxiety has eased this year. The Chicago Board Options Exchange Volatility Index, which measures expected price volatility for the S&P 500 index in the next 24 hours, last traded around 16. This is lower than any data prior to the release of CPI since May 2022. However, JPMorgan's strategy indicates that investors face high risks.

Of course, playing games on CPI day is not easy. First, the data has different flavors, and there is a divergence on which issue is more important to traders. JPMorgan's team focuses on overall data, while a survey by 22V Research focuses on so-called core inflation, excluding food and energy. In a survey of customers conducted by 22V, nearly two-thirds of respondents expect the core CPI to be lower than the economists' forecast of 5%. Approximately 54% of people consider this to be a risky endeavor.

Over the past year, the S&P 500 index has experienced an average volatility of 1.6% on CPI trading days. Danny Kirsch, the options director at Piper Sandler & Co., stated that this time, the implied volatility in the options market is around 0.7%.