CPI Cheat Sheet (Free Access)
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Valentine's Day is finally here, Roses for a love we hold so dear. But prices high, oh deary me, Inflation's up, it's plain to see.
A dozen red roses, such a sweet token, but the cost leaves our wallets broken. Still, we'll pay it, without fail, for love is worth the costly tale.
Happy Valentines/CPI day one and all.
Today is the day we find out if Powell's 'disinflation' theory is still in play, or if prices are on the rise again.
We've already talked about what to expect in our weekly macro report on Sunday. So let's jump straight into the numbers!
Will today's data snap the six-streak of easing inflation?
Our take:
Forecast 6.2% YoY
Higher than expected: Bullish rates/ Bullish Dollar / Bearish stocks
In Line: Neutral to Bearish rates / Neutral to Bearish Dollar / Bullish stocks
Lower than expected: Bearish Rates / Bearish Dollar/ Very Bullish stocks
JP Morgan's CPI Playbook
SPX Gamma Levels
SPX Price Chart (60 Min)
Positive Gamma above 4139.22: Market makers sell futures into strength and buy into weakness to hedge against options positions.
Result: Less Volatility
Negative Gamma below 4122.19: Market makers sell weakness and buy strength.
Result: Higher Volatility
VIX Term Structure Backwardation
The spike in Implied Volatility for January 14 suggests traders have accumulated a large amount of put options to cover the 'event risk' over the numbers, adding to the negative Gamma below the market (see above).
However, if the market responds well to the data, these short-dated puts will decay fast. In this event, Charm and Vanna flows will fuel a move higher in stocks.
Conclusion
No one knows for sure what the CPI number will be, and I'm no different.
But I am sure that today will be volatile. So my advice, is don't trade unless you really have to, and manage risk like a ninja!
As always, thanks for reading guys, and good luck out there!
Elliott.
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