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Yesterday’s PPI Data boosts Bitcoin, today’s CPI release holds critical importance.
Last Friday’s labor market data led to a market decline. However, yesterday’s US PPI (Producer Price Index) data sparked a recovery. The Producer Price Index came in at 3.3% annually, against the expected 3.5%. Today, all eyes are on the CPI data. Following the release of yesterday’s data, Bitcoin surpassed the 97k mark, while gold broke through $2675.
Expectation: Headline Inflation to Rise by 2.9% Year-on-Year
Markets expect headline inflation to increase by 2.9% year-on-year. Inflation had risen from 2.4% to 2.7% in recent months. If this increase continues, the Fed may need to delay interest rate cuts for a longer period.
As important as headline inflation, core inflation, which excludes energy and food prices, is also a key indicator. Core inflation has been above 3% for 44 months and has been reported at 3.3% over the past three months.
Expectations Regarding Fed’s Interest Rate Decision Shaped by Inflation Data
The US Federal Reserve (Fed) will hold its interest rate meeting at the end of this month. It is almost certain that the rates will remain unchanged at the meeting on January 29.
Recent data and statements have led markets to expect only two interest rate cuts in 2025. However, with the labor market data released last Friday, some financial institutions have lowered this expectation to one rate cut.
Today’s inflation data could reshape the predictions regarding the Fed’s future rate decisions.
CPI Data Expected to Move Markets
The CPI data, which will be released today, is expected to cause significant movement in the options market. Stuart Kaiser, Citigroup’s Head of Trading Strategies, forecasts a 1% fluctuation in the S&P 500 index following the data release. This expectation indicates increased volatility in the markets.
The 1% movement forecast is the highest expected volatility since the 2023 March banking crisis. Regardless of whether the data is positive or negative, significant market movement is anticipated today.
SpotGamma options platform founder Brent Kochuba also highlighted the same topic, saying:
“If the CPI data comes in lower than expected, we could see a sharp rise in the S&P 500, and the index could surpass the 5900 level. There are significant amounts of sell options below this level. However, if the CPI data comes in higher than expected, the pace of the decline in the index will accelerate, and the VIX index will also experience a significant rise.”
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