As we previewed earlier this week, only one number matters for the markets – both stocks and bonds – this week, and it will be released at 8:30am this morning, when the BLS unveils the January CPI print, dubbed by various trading desks as “the most important CPI print ever”, with every trader, both carbon and semiconductor based, focusing only on whether core CPI comes at 0.2% as expected, or higher. If it’s the latter, TSY yields will spike – conventional wisdom goes – while the second leg of the equity rout could be unleashed. Inversely, if the core CPI disappoints, we may see a sharp move lower in 10Y yields and the dollar, while stocks prepare to retest all time highs.
“Since the last payrolls about two weeks ago, inflation is the obsession of traders,” Pierre Martin, a trader at Saxo Bank in Zurich, told Bloomberg. “Given the selloff in stocks and with a lot of brokers pushing clients to buy the dip, people are trying to position themselves ahead of the CPI figures today. The sentiment is that a lot has been priced in already, but I’m a bit more cautious and wouldn’t be surprised to see volatility aftershocks in the coming days,” Martin said.
There have been no volatility shocks for now, however, as one look at the futures and global stocks ahead of today’s CPI shows not only the inverse of yesterday’s early sea of red (which quickly turned green) but broad consensus – for now at least – that either the CPI number will disappoint or the market will promptly decide it does not matter if it indicates the economy is overheating.
Following another day of strong gains around the globe, S&P index futures extended gains, hitting a session high as European opened when the E-mini ran upside stops through Monday highs, although gains have since been somewhat pared back. March contracts on the S&P 500 rose 0.4 percent just after 6am ET, fluctuating during Asian trading hours. Futures on the Dow Jones Industrial Average added 0.6 percent, while the Nasdaq 100 Index was up 0.6 percent.
Also keep in mind that even if the CPI proves to be a dud, today is the monthly VIX options expiration. Counting puts and calls, there are 15.4 million VIX options outstanding, and 40% of them mature today. The move has …read more