Volatility expectation in global markets before US data
While the spot market remains calm before the US CPI data, the options market is pricing in the possibility of high volatility in stocks.
While American stock markets remain flat before the US CPI data, Asia Pacific indices are rising led by technology stocks.
The S&P 500 index closed flat on Monday at 5,221 points. Futures were traded slightly negative in the morning hours. Hong Kong’s Hang Seng technology index diverged positively in Asia, rising more than 1 percent. Tencent and Alibaba stocks dragged the rally before the balance sheet announcements.
The calm outlook also draws attention in the exchange rate and bond markets. Bloomberg Dollar Index remains horizontal at 1,254 points. The US 10-year bond yield was little changed at 4.48 percent. Brent oil is buying at $83.47 with a 0.1 percent increase, and ounce gold is buying at $2,343 with a 0.3 percent increase.
Expectation of volatility in stocks
While the size of movement in spot markets decreases before the US April consumer inflation data, option markets imply high volatility.
JPMorgan Strategist Andrew Tyler stated that investors are protecting themselves against the S&P 500 index moving 1 percent in either direction in the options market ahead of Wednesday’s critical data.
Tyler said, “The fundamental risk stands out as a higher CPI data. However, upcoming macro data creates a double-sided risk. On the one hand, there is concern that strong growth will fuel inflation. “On the other hand, weak growth may strengthen expectations of recession or stagnation,” he commented.
The New York Fed survey, published before the critical data, showed that there was no softening in household inflation expectations. American consumers predict inflation will be 3.3 percent next year, according to a survey released Monday. Thus, the highest inflation expectation in the survey since November was reached.