Wall Street Is ‘Immune’ to Inflation, Expects CPI to Beat Estimates Without Impacting Stock Market

September 10th. The trading desks on Wall Street anticipate that the U.S. Consumer Price Index (CPI) to be released this Thursday will exhibit hot inflation data. Nevertheless, as employment data has become the core of the market discourse, they do not foresee significant stock market volatility. Stuart Kaiser, the head of equity derivatives trading strategy at Citigroup, stated that options traders are wagering on the S&P 500 index to fluctuate by around 0.7% in both directions subsequent to the CPI release. This is lower than the actual average volatility of 0.9% on CPI release days over the past year and is also lower than the market's volatility expectations for the upcoming employment report on October 3rd. Kaiser even holds the view that this implied volatility is still excessive. All of this is associated with how traders are inferring the Federal Reserve's interest rate path. U.S. employment data has presented indications of economic growth weakness. Therefore, the market anticipates that the Fed will reduce the federal funds rate by 25 basis points at the conclusion of the September 17th meeting and may potentially continue with rate cuts at the October and December meetings. (FX678)