This week is a long-awaited super-bumping week for the global market. With a key indicator to measure US inflation, the November CPI data is about to be released, the Fed interest rate resolution is coming, and the latest comments issued by Fed Chairman Powell, investors hope to finally clearly see the stock market that has suffered heavy losses in 2023 and the prospects for economic growth.
Global stock markets can be said to have experienced an extremely turbulent year, with US stock benchmark index - S&P 500 index showing its biggest annual decline since the global financial crisis in 2008 this year. With the arrival of many major macro news, stock traders have prepared for an event with a high probability in the next few trading days - that is, the greater volatility in the stock market under the fierce battle between bulls and bears.
CPI was released on the day when US stocks fluctuated abnormally violently
US inflation data (CPI) has had a huge impact on US stocks and even global stock markets throughout the year, mainly because traders this year, with the continuous soaring global prices, they can see the possible policy paths of the Federal Reserve and the Global Central Bank in response to high inflation through CPI data. The CPI data to be released on Tuesday night in Beijing time is crucial, and signs of a decline in inflation may ease expectations for the Federal Reserve to continue hike rate hikes next year, thereby boosting stocks by the end of the year. Although the
CPI data is unlikely to affect the Fed's interest rate resolution to be released on Thursday Beijing time, the data may affect the subsequent Fed's policy tone, including the outlook for the FOMC voters' expectations for the US economy and interest rate, and Powell's wording on the Fed's way of fighting inflation after the two-day meeting.
Zhitong Finance APP learned that according to statistics compiled by institutions, in the past six months, the average up and down fluctuation of the S&P 500 index was about 3% on the day the CPI data was released in the past six months, the highest level since 2009. Among the 11 CPI reporting days this year, the S&P 500 index fell 7 times, and the fluctuation on that day was very large.
market fluctuates sharply - On the day of the CPI release, the S&P 500 fluctuated up and down by 3%
Currently, the market generally expects that the Federal Reserve will announce a 50 basis point rate hike at the end of the interest rate meeting on December 14, and stock investors are more concerned about the latest comments made by Federal Reserve Chairman Powell at the subsequent press conference, looking for any suggestive clues about the direction of interest rates. In addition, the latest outlook of the Fed's FOMC voters on the US economy and changes in the voters' expectations for the Fed's interest rate will also become the focus of attention.
Of course, after the S&P 500 index rose for the first time in more than a year in October and November, global fund managers hope to close higher at a relatively optimistic point in 2022. But betting on the optimistic trend in the coming months is very challenging, with the S&P 500 set to see its first annual decline since 2018 and Wall Street investment institutions generally expect the benchmark index to fall to a new low again in the first half of next year.
Russell Investments chief investment strategy teacher Erik Ristuben said: "At present, it is difficult for investors to find the right position." "The Fed's policy is indeed pouring cold water on the feast of the stock market until Wall Street generally believes that the Fed is about to end the rate hike cycle ."
stock put options buying power is extremely strong! Investors generally lack confidence in the future
In addition, the latest data shows that before this critical week, investors in the U.S. stock market generally lack confidence, which is very obvious in the options market. In the past 10 weeks ending December 2, Chicago Options Exchange Volatility Index (VIX Index) has been on a downward trend for 80% of the trading days. This has only happened three times since Wall Street’s so-called fear indicators came out, according to data compiled by Bespoke Investment Group. "There is a market view that the VIX index has fallen too much, which is a little abnormal, given the major events such as the CPI data and the Fed's interest rate decision this week."People are beginning to realize that previous market expectations may have seemed too optimistic. ”
From the historical data, the VIX index, which measures the cost of options in the S&P 500 index, is often opposite to the three major U.S. stock indexes. The VIX index is falling most of the time, indicating that the market's bullish sentiment towards the S&P 500 index is rising. However, this may also mean that market expectations are too optimistic. After all, if the results of major events such as CPI data and the Federal Reserve's economic outlook this week are not as good as investors' consensus, market expectations may undergo a major change.
hedges the rise in demand for ! The trading volume of single stock put options soared compared to call options
At the same time, demand for hedging individual stock losses pushed the put-to-call ratio of individual stocks to 1.5 last Wednesday, the highest level since 2001 and more than double the average this year. But the similar logic is that if the results of major events such as CPI data and the Federal Reserve's economic outlook tend to be optimistic, the bets of short may face challenges.
bets! On the eve of the CPI announcement, the expectation of interest rate hikes is being heated up
After the PPI data exceeding market expectations, the pricing data of futures market shows that the market expects the Fed's policy interest rate to reach a peak rate hike in the range of 5%-5.25% in the first half of 2023 (previously the market price was 4.75%-5%). This means that during the period of suppressing the high price hikes, the Fed still has a lot of room for interest rates. Statistics from Carson Investment Research show that in the past 8 interest rate hikes, the Fed has been raising borrowing costs until the interest rate is higher than CPI.
still has more room for interest rates? The Federal Reserve has continued to raise interest rates in the past eight cycles until federal funds interest rate can suppress CPI
If the Federal Reserve slows to a 50 basis point rate hike on December 14, Eastern Time, the federal funds rate will remain in the range of 4.25%-4.5%. Meanwhile, the market expects Tuesday's CPI report to show that the year-on-year CPI increase in November slowed to 7.3% from 7.7% last month. But this expectation is difficult to say that it will be realized, especially after the producer price index (PPI) released last week was stronger than expected, which suppressed the market's CP announced next week to a certain extent. I data may have a hope of further slowing down.
data shows that the US producer price index (PPI) in November increased by 0.3% month-on-month, up 7.4% from the same period last year, while market expectations were 0.2% and 7.2% respectively. Excluding food and energy, core PPI rose 0.4% month-on-month , which is also higher than the general market expectations. PPI is an important indicator for measuring the price of production-side products and is often of great significance for predicting CPI data, so the CPI data this week is difficult to be optimistic.
comes from Homrich Stephanie Lang, chief investment officer at Berg, said: “Now is definitely a tricky time for investors. "Investment agency Homrich Berg recommends investors take a defensive stance, which is optimistic about consumer essentials and healthcare defensive stocks. "If there are any historical signs that the Fed has had a record of adjusting monetary policy beyond expectations, then this makes us cautious about the stock market. ”
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