Traders bet on “irrelevant” CPI on Thursday, and expectations of fluctuations in US stocks plummeted

The Zhitong Finance App learned that in the past three years, the US monthly consumer price report has been federal data that stock traders are extremely concerned about. Today, investors wait for the November inflation report to be released on Thursday, mostly with a sense of indifference rather than the anxiety of the past.

Options traders are betting that the S&P 500 will fluctuate 0.7% in either direction, according to data compiled by Barclays. This margin is significantly lower than the 1% average actual fluctuation triggered by the 12 reports up to September.

There are good reasons for the shift in market sentiment. The Federal Reserve's current reaction to signs of weakness in the labor market is more sensitive than small changes in the inflation rate. Tuesday's data showed that the job market is still sluggish, leaving the door open for interest rate cuts next year.

The November report, which was originally scheduled to be released on December 10, has now been postponed to Thursday. The data is also more “old” than usual, and the reliability may be lower than normal due to the interruption of investigations due to the government shutdown. Also, the October CPI report will not be published.

Alexander Altman, global head of equity tactical strategy at Barclays Bank, said: “The market is already operating on the assumption that this report is either 'insignificant, 'or the quality is questionable from the perspective of data collection, and will be ignored by the market.”

According to the US Bureau of Labor Statistics, due to the lack of October data, this CPI report can only provide a partial overview of inflation and cannot compare the overall index with the core index on a monthly basis.

The report is unlikely to change the outcome of the Federal Reserve's January policy meeting. Investors expect the central bank to keep interest rates unchanged at that meeting and await more reliable data on economic conditions. The Federal Reserve just cut interest rates by 25 basis points for the third time in a row last week.

Greg Boutel, head of US equities and derivatives strategy at BNP Paribas, said: “The impact of possible outcomes on the stock market is very limited. The threshold for CPI data to have an impact is very high. It must be extreme data that clearly deviates from expectations.”

This is due in large part to the fact that the Federal Reserve is paying close attention to the downside risks of employment, at least as much as it is paying attention to CPI. Employment growth in the US remained weak in November, and the unemployment rate rose to a four-year high, indicating that the labor market continued to cool down after the weakness in October.

Not all Federal Reserve officials are more concerned about the labor-market aspect of the central bank's dual mission. Two officials opposed interest rate cuts last week, citing concerns about tariffs affecting prices. Atlanta Federal Reserve Chairman Bostic said on Tuesday that policymakers should continue to focus on dealing with inflation, and high price pressure is expected to continue for most of next year.

Investors last saw the full CPI report at the end of October. The data showed an overall inflation rate of 3% — slightly higher than the Federal Reserve's target, but in line with market expectations. Investors expect November data to be similar.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said: “We are not expecting anything beyond normal” because the market expects a year-on-year increase of around 3% again. If the figure reaches 3.5%, traders may be caught off guard.” Also, significantly better-than-expected data — say 2.7% or less — would really surprise people, but that's good.”

Another reason for the decline in the importance of CPI is that Chairman Jerome Powell's term will end in May next year. His successor is expected to strongly support sharp interest rate cuts to meet Donald Trump's unconventional demand for deep interest rate cuts, regardless of the data.

Jason Coogan, an index options trader at Chicago-based market maker Simplex Trading, said: “Any report involving inflation is important this year, but as the year progresses, we are close to Trump's appointment as the new Chairman of the Federal Reserve, and its importance has diminished.”

Traders may also downplay Thursday's inflation data based on seasonal factors as the stock market approaches a traditional bullish period.

Coogan said, “In my opinion, these trading positions indicate that people expect the market to rebound to a record high.”

The S&P 500 index fell for the third day in a row on Tuesday, closing 1.5% below its previous record high.