VIX 1-day rises sharply ahead of December CPI report

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It was a very rocky trading session with the markets fluctuating significantly. Going into the CPI report, one notable aspect was the 1-day VIX, which rose significantly today. It closed up about 5.6 points to finish at 22.50. This underlines the nervousness in the market ahead of tomorrow’s CPI report.

CPI is expected to increase from 0.3% to 0.4% month-on-month, with core CPI expected to hold steady at 0.3%. CPI is expected to increase to 2.9% year-on-year from 2.7%, while core CPI is expected to remain unchanged at 3.3% year-on-year.

Looking back, there have only been two instances in the past year where the PPI report was released before the CPI report. Historically, the market has made minor adjustments based on this report. However, based on intraday swaps data, it does not appear that the market has changed its expectations for tomorrow’s CPI report. Swaps prices remain around 2.9% year-on-year and imply a monthly change of approximately 0.4%, which is in line with analyst expectations.

A 0.4% m/m figure is unfavorable for the Fed and is likely to cause the market to remove 2025 rate cuts from its equation. Despite a cooler-than-expected PPI report, 10-year rates were unchanged at 4.80%, while 30-year rates edged slightly higher to 4.98%. The dollar index weakened marginally. Obviously, a miss on the CPI would cause rates to fall sharply and the dollar index to fall, which would be positive for the stock market.

With the 1-day VIX high, there is the possibility of a volatility crush following the data release, meaning the initial market reaction may not reflect the final trend. So a post-CPI rally, regardless of the data, is likely. Otherwise, support in the S&P remains at 5,780, with resistance at 5,875.

More tomorrow

– Mike

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