The market holds its breath! CPI coupled with bank financial reports season will hit on Wednesday, will the U.S. stock market volatility rise?

Option traders are on high alert for the release of the US Consumer Price Index (CPI) report on Wednesday, which could trigger a new round of market volatility. The December CPI report is expected to be released at 21:30 Beijing time on Wednesday, with market expectations for a 0.2% increase in core CPI excluding food and energy costs, lower than November's 0.3%. Market also expects core CPI to rise 3.3% year-on-year, higher than the Federal Reserve's 2% target, but in line with the previous three months. With strong employment data undermining rate cut expectations and US Treasury yields soaring, the CPI report has become the focus of the market. Stuart Kaiser, head of US stock trading strategy at Citi Group, stated that based on the cost of put and call options at parity, the S&P 500 index is expected to fluctuate by 1% on January 15. This is the largest implied volatility ahead of a CPI release since the turmoil in the US banking sector in March 2023. Traders believe that the CPI data will provide clear information on the Federal Reserve's rate cut path for this year. Prior to this, several major banks cut back on rate cut bets after the strong employment report, with Bank of America even expecting no rate cut. This change in tone has pushed the US stock market lower at the start of the year. Brent Kochuba, founder of the options platform SpotGamma, commented, "With rising volatility, a cooling CPI data may quickly push the S&P 500 index back above 5900." "If the CPI data is hot, then we may see a faster decline in the S&P 500 index, which will correspond to a significant jump in the volatility index (VIX)." The S&P 500 index has erased its gains for the year, with concerns about sticky inflation pushing the VIX index up to 20 points, indicating traders' concerns. Data from derivative analysis company Asym500 shows that expected and actual volatility indicators have been above average levels since 2025. The VIX index is higher than the average level of the past year. The reaction of the options market on the eve of the CPI data release shows that investors are once again becoming more sensitive to inflation reports. After experiencing the most aggressive rate hike cycle in decades last year, as inflation slowed down, attention turned to the Federal Reserve's dual mandate of employment goals, and the US stock market's response to consumer price signals was relatively mild. It is worth noting that the fourth quarter earnings season will officially kick off on Wednesday, with JPMorgan Chase, Citi Group, and BlackRock set to release earnings, which could also lead to significant market volatility. According to reports from Bank of America, option traders expect an average stock price fluctuation of 4.7% in the S&P 500 index after earnings are announced, setting a record for the largest earnings day volatility in history. Chris Murphy, co-head of derivatives strategies at Susquehanna International Group, commented, "These macro events have intensified volatility."