Analysis: November CPI Report May Just Be a 'Sideshow,' with a Very High Market-Impact Threshold
BlockBeats News, December 17th. For much of the past three years, the monthly Consumer Price Index (CPI) report has been one of the key data points closely watched by U.S. stock traders. Today, investors are no longer on edge, but rather await Thursday's release of November inflation data with a sense of detachment.
Options traders are betting that the S&P 500 index's daily price movement will stay within 0.7%. This is significantly lower than the 1% average actual volatility seen in the 12 CPI reports leading up to September of this year.
The shift in market sentiment is not unwarranted. The Federal Reserve has recently been more focused on signals of labor market weakness rather than minor fluctuations in inflation. Data released on Tuesday showed that the job market remains sluggish, leaving room for rate cuts next year. "The market has priced in that this data is either irrelevant or questionable in terms of quality from a data collection perspective and will not be overly scrutinized," said Alexander Altmann, Global Equity Tactical Strategy Director at Barclays.
This report is also unlikely to alter the outcome of the Fed's policy meeting in January next year. Another reason for the diminished importance of the CPI is that Fed Chair Powell's term ends in May next year. His successor is expected to strongly support substantial rate cuts to accommodate President Trump's unconventional demands for aggressive easing, regardless of the data.
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