Volatility Crush May Send Stocks Higher Post-CPI Data
Yesterday was a rather unremarkable, boring day on the surface, with the S&P 500 finishing down 11 bps. Implied volatility for today was sharply higher yesterday, especially as the day went on. The VIX 1 Day yesterday surged by 6 points to close at 18.60, its highest close since the end of October. The equity market cares about today’s CPI report.
This means that the knee-jerk reaction to the CPI report can cause implied volatility to fall once event risk has passed and that a decline in implied volatility could initially push markets higher. So, one needs to be careful how they interpret the CPI results and be aware of the potential volatility crush, sending stocks higher. But the elevated 1-day VIX index is clearly a sign that the market does care, and there are some worries around this report.
The cleanest signal for an after-market response will likely come from the dollar and bonds. Those will give a much better indication of the market’s view on the CPI report.
Analysts see CPI rising by 3.1% y/y, in line with January, and by 0.4% m/m, up from 0.3%. Core CPI is expected to rise by 3.7% y/y down from 3.9%, while rising by 0.3% m/m down from 0.4%. I have nothing new in the way of data regarding CPI swaps, which are still trading when rounded to the nearest tenth at 3.2% y/y and 0.5% y/y, and higher than analysts’ forecasts.
I don’t have much else to add at this point.
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