CPI hype fades? Market shifts focus to employment and interest rate cut expectations

【BlockBeats】Recently, there has been a noticeable shift in market sentiment. Over the past three years, monthly Consumer Price Index (CPI) reports have consistently attracted significant attention from stock traders, even causing some anxiety. But now, things are different — investors are particularly calm about the inflation data released on Thursday for November, even somewhat indifferent.

According to data, options traders predict that the S&P 500 index’s daily fluctuation will be contained within 0.7%. What does this number indicate? The comparison is clear — the actual volatility triggered by the previous 12 CPI reports up to September averaged 1%. In other words, the market’s sensitivity has indeed decreased.

What has caused this change? There are two main reasons. First, the Federal Reserve has recently been more concerned with signals of a weakening labor market rather than slight fluctuations in inflation data. The employment data released on Tuesday still shows a sluggish market, leaving room for rate cuts next year. As mentioned in Barclays Global Equity Tactical Analysis, the market has implicitly assumed that this data either has little impact or is of questionable quality and not worth excessive attention.

The second, more critical reason — the term of the Federal Reserve Chair will end in May next year, and the successor is expected to strongly push for significant rate cuts. Based on the current President’s unconventional policy tendencies, the future monetary policy trajectory is unlikely to change due to any single CPI report. In other words, rate cuts are probably a done deal, and the data is just a formality.

This shift reflects a new market expectation regarding policy — when the policy direction is clear, the influence of a single data point diminishes. For traders focusing on the Fed’s movements, the next focus may shift from inflation indicators to employment data and policy statements.