At 9:30 PM Beijing time tonight, the US November Consumer Price Index (CPI) report, delayed due to the US government shutdown, will be released. In recent years, with persistently high inflation in the US, the CPI report has been one of the most closely watched federal economic data points for US stock traders.
Nowadays, investors are no longer as anxious about the upcoming inflation report as they used to be; instead, they are mostly indifferent.
According to Barclays bank Data collected shows that options traders are betting that the S&P 500 will fluctuate by less than 0.7% on Thursday. This is far below the average actual volatility of 1% triggered by the previous 12 CPI reports up to September of this year.
The shift in market sentiment is understandable. The Federal Reserve has recently been focusing more on signs of weakness in the labor market than on minor fluctuations in the inflation rate. Data released on Tuesday showed that the U.S. job market remains sluggish, leaving room for interest rate cuts next year.
The November CPI report, originally scheduled for release on December 10th but postponed to this Thursday, is not only less timely than usual, but also faces the risk of decreased data reliability due to disruptions in survey work caused by the government shutdown. It is worth noting that the US October CPI report has already been cancelled.
“The market has already priced in the expectation that this data is either irrelevant or of questionable quality from a data collection perspective and will not receive excessive attention,” said Alexander Altmann, head of global equity tactical strategy at Barclays .
The U.S. Bureau of Labor Statistics points out that due to the lack of October data, this inflation report can only present a partial picture of inflation and cannot provide monthly comparison data between the overall inflation index and the core inflation index.
It is difficult to influence the Fed's decisions.
The upcoming CPI report is unlikely to change the outcome of the Federal Reserve's policy meeting in January—investors currently expect policymakers to keep interest rates unchanged and await more robust data reflecting economic conditions. Last Wednesday, the Fed, as expected, announced a 25-basis-point rate cut, marking its third consecutive rate cut.
“The potential impact of the outcome on the stock market would be extremely limited,” said Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas. “The threshold for CPI data to have an impact is very high; there must be a significant deviation from expectations.”
This is largely because the Federal Reserve is closely monitoring downside risks to the job market, no less than, and perhaps even more than, the consumer price index. U.S. job growth remained sluggish in November, with the unemployment rate rising to a four-year high, indicating that the labor market continued to cool after a weak October.
Not all Federal Reserve officials are more focused on the employment aspect of the central bank's dual mandate. Two officials voted against a rate cut last week, citing concerns about the impact of tariffs on prices. Atlanta Fed President Bostic said on Tuesday that policymakers should continue to focus on inflation, expecting high price pressures to persist for most of next year.
Investors last received a full CPI report at the end of October, when data showed overall inflation at 3%—slightly above the Federal Reserve's target but in line with market expectations. Investors expect November's data to be similar.
“We don’t expect any outliers in this data,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. He noted that the market expects the year-on-year CPI increase to remain around 3%. A figure of 3.5% could catch traders off guard; similarly, a figure significantly better than expected—such as 2.7% or lower—would also be surprising, but a positive surprise.
Another reason for the reduced importance of the CPI report is that Federal Reserve Chairman Jerome Powell's term will end next May. His successor is expected to strongly support significant interest rate cuts in response to President Trump's unconventional demands for large rate cuts—regardless of economic data performance.
“All inflation-related reports have been important this year, but their importance has diminished over time, and with President Trump’s impending appointment of a new Federal Reserve chairman,” said Jason Coogan, an index options trader at Chicago market maker Simplex Trading.
Traders may also downplay the impact of upcoming inflation data due to seasonal factors—after all, the US stock market is about to enter a traditional bull market cycle.
“In my view, current trading positions are sending a clear signal that the market is betting that U.S. stocks will continue to rise and reach new all-time highs,” Coogan said.
(Article source: CLS)
