Inflation Jumps in September: Here's Your Day Trading Game Plan
As the financial world gears up for the release of the September Consumer Price Index (CPI) report, market participants are on high alert. Recent developments, including heightened tensions in the Middle East, have brought inflation concerns back to the forefront for U.S. stock markets.
Consumer price index data for September showed that core inflation ran hotter than expected, new claims for unemployment benefits unexpectedly surged in the first week of October.
In accordance with projections, the core CPI, which excludes volatile food and energy costs, increased by 0.3% from August levels. On the other hand, the 12-month core CPI inflation rate surprisingly increased above estimates, rising to 3.3%. In September 2022, the core CPI inflation rate reached a 40-year high of 6.6%.
Analysts from $Bank of America (BAC.US)$ have warned that the upcoming CPI data could trigger significant market movements, with the S&P 500 expected to experience a 1.09% swing on Thursday. This predicted volatility surpasses the three-month average of a 0.7% move on CPI release days and would mark the largest fluctuation tied to a CPI report since May.
The Impact of Recent Economic Data
The September inflation figures were initially expected to be plain regular data, but last week's robust nonfarm payroll report, which added 254,000 jobs, has shifted market expectations. The strong labor data suggests an economy that continues to perform well, leading to concerns that a hotter-than-expected CPI could recalibrate expectations for Federal Reserve rate cuts.
Ever since the strong payroll report, the odds of a 50 basis point rate cut have diminished, and the CME FedWatch Tool indicates a nearly 15 % probability that interest rates will remain unchanged at the next Fed meeting.
BofA analysts underscored the increased significance of the CPI report following the "blowout jobs report".
Market Reactions and Predictions
The rise in Wall Street's "fear gauge," the $CBOE Volatility S&P 500 Index (.VIX.US)$, indicates that market movements around the CPI release could be more pronounced. Doug Fincher, portfolio manager at Ionic Capital Management, noted that the $S&P 500 Index (.SPX.US)$ is trading at high levels while credit spreads remain low, suggesting potential for larger stock moves. Economists are forecasting the CPI to show a continued cooling in inflation, with a year-over-year rise of 2.3%, down from 2.5% in August. However, an upside surprise remains a possibility, which could introduce uncertainty regarding the Federal Reserve's easing cycle and lead to increased market volatility.
The market saw some significant Vix trades during the previous trading session, with 17, 19 calls expiring on December 18th, which saw the highest open interest increase to 82,157 and 38,782.
Federal Reserve's Easing Cycle and Market Implications
The Fed's response to the CPI data will be closely watched.
BS economist Brian Rose highlighted that a faster-than-expected rise in prices, combined with strong labor data, could increase the likelihood of the Fed pausing its easing efforts in November. Nevertheless, JPMorgan analysts suggest that the Fed is unlikely to alter its policy direction based on one month's data, especially with only one more inflation report expected before the next meeting.
Bank of America analysts reiterated that point, noting that the Fed hasn't stopped easing after a 50 basis point cut since 2002. "Even after the strong payroll report, Fed speakers still indicate a bias for additional cuts, and it would be very unlikely in our view for the Fed to adjust the direction of policy from one month's data," the analysts said in a Wednesday note.
Source: Bloomberg, Business Insider
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Alen Kok : The economy is in recession.