Today's CPI is of great significance for the US stock market

Buckle up! Tonight's CPI is set to make a significant impact, comparable to the first Federal Reserve decision day of the year.

Due to soaring U.S. Treasury yields and unexpectedly strong employment data, U.S. stocks have experienced significant fluctuations recently, with the S&P 500 index erasing its gains for the year. Options traders are anxious about the potential for more volatility in the coming days.

Among the most closely watched data is the U.S. December CPI, which will be released at 21:30 Beijing time tonight. Investors hope this data will provide clearer guidance on the prospects for interest rate cuts this year.

Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, analyzes that the S&P 500 index is expected to experience a 1% fluctuation after the CPI data is released, marking the highest implied volatility for the index on a CPI release day since the regional bank crisis in March 2023.

This level of implied volatility is comparable to the upcoming Federal Reserve interest rate decision (January 29) and has already surpassed the next non-farm payroll day (February 7).

Against the backdrop of rising inflation concerns and ongoing uncertainty regarding Federal Reserve actions, the U.S. fear index VIX has risen to nearly 20, indicating strong market anxiety.

JP Morgan: Core CPI month-on-month growth may slow, S&P expected to rise

Currently, analysts generally expect the core CPI for December to rise by 0.2% month-on-month, down from 0.3% in November, with a year-on-year growth of 3.3%. Although this is still above the Federal Reserve's 2% target, it is consistent with the previous three months.

JP Morgan predicts that if the month-on-month increase in core CPI exceeds 0.3%, the S&P 500 index could drop by as much as 2%, but the probability of this scenario occurring is only 5%.

The bank believes the most likely scenario is that the month-on-month growth of core CPI in December will be between 0.17% and 0.23%, driving the S&P 500 index up by 0.3% to 1%. Additionally, if the month-on-month increase is below 0.1%, the S&P 500 index could surge by 1.8% to 2.5%.

Brent Kochuba, founder of options platform SpotGamma, analyzes:

“Given the current high volatility, if the CPI data comes in below expectations, the S&P could quickly rebound above 5900 points. However, if the CPI data exceeds expectations, the decline of the S&P 500 index may accelerate, and the VIX index will also rise significantly.”

It is worth noting that the Q4 earnings season for U.S. stocks will officially kick off this Wednesday, with major banks like JP Morgan, Citigroup, and BlackRock leading the charge, which may further exacerbate market volatility