Insights 
VT 
Market Impact Of NFP And CPI Reports
Professional forecasters predict the US Core PCE year-on-year will rise to 2.6%. The month-on-month figure is expected to be 0.15%, which may round to 0.1% or 0.2%.
Despite these expectations, the data is unlikely to affect the Federal Reserve or the market. Forecasters and the Fed use CPI and PPI reports to accurately project PCE data, making it less influential.
The upcoming NFP and CPI reports are anticipated to be more impactful. These reports will influence market pricing and potentially move the markets based on the figures they provide.
In short, what we’re dealing with is market attention shifting away from the PCE numbers, at least for now. There’s a reason for that, and it comes down to predictability. Both the Federal Reserve and larger market participants rely heavily on the earlier CPI and PPI reports to more or less lock in what the PCE figures will look like. When that much of the picture has already been filled in, there’s little room left for surprise. The recent expectations for the Core PCE—annual at 2.6% and monthly sneaking in just above 0.1%—are priced with caution, but familiarity.
Under normal circumstances, that kind of fine-tuned accuracy would carry weight. But at the moment, the attention has already turned. Payroll data and consumer price figures carry the potential to disturb market pricing much more directly, particularly as the Federal Reserve nears its next decision point. Changes in outlook around labour market strength and consumer inflation are now dictating short-term volatility, especially for those of us managing rate-sensitive positions.
Influence Of Liquidity Conditions On Market Movement
We should also be conscious of the context. While Powell’s team has signalled steady patience, they are reacting bit by bit to stronger labour prints and slower disinflation than anticipated. If there’s another upside surprise in wage growth or consumer prices, especially core measures, it may adjust the market’s forward path of policy rates in a more aggressive manner than what’s currently baked in.
That means even mild data shifts could deliver actionable trading opportunities. Ahead of the nonfarm payrolls release, it would be wise to rerun models with a tighter sensitivity analysis. Small adjustments in hourly earnings, say just a tenth of a point, may prompt repricing—not across prices broadly, but in front month contracts and volatility skews. We’ve seen that sensitivity before, and it’s been increasing throughout this quarter.
Moreover, derivatives tied to policy timing, such as rate swaps and short-dated eurodollar futures, move more on what’s next than what’s behind. Anything that shifts the first-rate-cut expectation a full meeting earlier or later causes premiums to move quickly. Longer-dated OIS pricing remains relatively anchored, but there’s room for correction if inflation surprises appear less transient.
Beyond figures, keep an eye on how forward guidance is interpreted and shifted. If Bowman or Waller hint that two rate cuts are not locked in, that’s not commentary—it’s a directive for duration traders.
Positioning into next week’s events should favour flexibility over certainty. Given the potential adjustments in forward rate expectations, especially with the way CPI comes just ahead of key options expiry dates, we’d rather structure expressions with spreads rather than outright directional risk.
Timing also becomes more meaningful. If implied volatilities drop into the release windows, that’s when calendar spreads or straddles on shorter tenors become more attractive. Placing weight on the Monday before CPI or Friday afternoon ahead of NFP makes more sense now than taking early-week positions.
Lastly, liquidity conditions remain thinner than usual through the end of summer. While that may dampen broad market follow-through, it does tend to magnify moves in specific products—particularly those tied closely to front-end rates.
So when we consider risk, we should not only manage size but tighten the window of commitment. Let the data do the work, but don’t expect the quieter reports to deliver the message. The big ones are still to come.
