Citi warns: After the initial jobless claims data tonight, US stocks may experience a 1.2% volatility

Due to recent panic leading to drastic fluctuations in the stock market, traders are preparing to face more uncertainties in the coming trading days, especially with the release of the U.S. jobless claims report scheduled for this Thursday, in search of more clues regarding potential rate cuts by the Federal Reserve and risks of economic recession in the U.S.

On Wednesday, August 7th, Eastern Time, Stuart Kaiser, head of equity trading strategy at Citigroup in the U.S., stated that the options market suggests that the S&P 500 index may experience volatility of up to 1.2% on Thursday. This expected volatility aligns with the Consumer Price Index (CPI) to be released on August 14th and the anticipated volatility after NVIDIA's earnings report on August 29th.

The market's high sensitivity to economic data is particularly evident in the current volatility. Due to recent panic selling, the S&P 500 index dropped over 8% from its all-time high closing of 5667.2 on July 16th, falling to 5186.33 points on Monday, approaching the correction territory (a decline of over 10% from the peak). As of Wednesday's close, although the S&P 500 index has slightly rebounded, it is still down over 8% from its historical high.

Kaiser wrote in his report to clients:

"We are surprised by the market's quick acceptance of the risk of economic recession, especially with the Atlanta Fed's GDP tracking at 2.9%. The jobless claims data on Thursday will be crucial. While the U.S. economic data is slowing down and the possibility of a recession is increasing, the macro information released last week is not sufficient to fully explain the change in market sentiment."

A series of U.S. economic data released last week all indicated a continued cooling of the U.S. labor market. The ADP employment report, known as "mini non-farm payrolls," fell more than expected on Wednesday, with wage growth slowing to the lowest level in three years. The number of initial jobless claims for the week ending July 27th in the U.S., released on Thursday, rebounded to the highest level in a year, and the non-farm payrolls for July, released on Friday, showed a significant increase of only 114,000 jobs, well below expectations, with the unemployment rate rising to 4.3%, the highest in three years. The risk of a hard landing for the U.S. economy has increased, leading to increased volatility in U.S. and global stock markets.

However, some analysts pointed out that the increase in initial jobless claims for the week ending July 27th in the U.S. was mainly due to Hurricane Beryl and annual auto plant shutdowns. The hurricane caused flooding in the state, displacing workers, particularly in Texas, leading to a high number of claims and impacting employment data.

Therefore, the market is closely watching the weekly initial and continuing jobless claims data released at 8:30 p.m. Beijing time to assess whether the labor market is further weakening and whether it is necessary to further bet on "recession trades." According to media surveys, the market generally expects that the number of initial jobless claims for the week ending August 3rd in the U.S. will decrease by 9,000 to 240,000.

Traders anticipate that any signs of weakness in the labor market could prompt the Federal Reserve to cut rates by 50 basis points in September. Some traders seem to have started cashing in on their significant bets on rate cuts through futures and options this year