MUFG on US CPI - FJELite

Base-case: Rounding will be a key driver of market reaction, with a 0.24% unrounded core feeling very different from a 0.15%. An initial rally is expected, led by the 2yr, but the composition will determine if it extends well past 8:30 or if it fades (widespread vs narrow set of items). The September PPI will be especially relevant to gauge PCE.

Upside risk: A core reading of 0.3% would keep rates under pressure and push hiking expectations for the Oct FOMC meeting towards 30%. We look for an initial bear flattening bias.

Downside risk: A 0.1% MoM core reading would quell expectations of a Fed hike in Oct, prompting a bull steepening move.