Insights 
VT 
The US Bureau of Labor Statistics is recalling some staff from furlough to finalise the September Consumer Price Index report amid a government shutdown. This report is necessary for the annual Social Security cost-of-living adjustment, which affects millions and is based on third-quarter CPI figures.
A delay could impact the announcement of this adjustment. The inflation data is not expected to be released on the originally set date, 15 October, yet remains integral for the Federal Reserve’s policy meeting later in the month, from 28-29 October.
Understanding Inflation
Inflation measures the increase in prices of goods and services, often presented as a percentage change monthly or annually. Headline inflation encompasses all items, while core inflation excludes volatile components like food and fuel, with central banks typically aiming for a 2% target.
The Consumer Price Index tracks such price changes, influencing interest rates and currency value. High inflation generally strengthens a currency due to anticipated interest rate hikes, while lower inflation can depress it. Inflation impacts the attractiveness of gold, making it less appealing during high interest rates but more viable when rates are low.
With the US government shutdown delaying the September CPI report, we are now facing a period of significant uncertainty. This missing inflation data is a key input for the Federal Reserve’s policy meeting at the end of October. The market is now less certain about whether the Fed will move on interest rates.
This uncertainty is a direct signal to expect higher volatility in the coming weeks. In fact, we’ve already seen the VIX, the market’s fear gauge, climb from around 17 to over 21 in just the last few days. This suggests that traders are pricing in larger-than-usual price swings across major assets.
Strategic Trading Considerations
For derivative traders, this environment makes long volatility strategies look attractive. We should consider buying options, such as straddles on the US Dollar Index or major currency pairs like EUR/USD. These positions can profit from a large price move in either direction once the inflation data is finally released.
Interest rate expectations are now muddled, which directly impacts our trading. Looking back, fed funds futures had priced in a nearly 65% chance of a rate cut this month after August’s core CPI remained stubbornly high at 2.9%. Today, those odds have fallen to a 50/50 split as traders have no new data to guide them.
We can look to the government shutdown of 2013 for a historical parallel. During that period, delayed economic reports caused erratic moves in rate-sensitive assets. This precedent tells us to prepare for choppy conditions rather than committing to a single directional bet.
Gold is also caught in this ambiguity, making options on gold futures or ETFs a useful tool. Higher rates would typically be negative for gold, but the current safe-haven demand is providing support. A well-structured options play allows us to capitalize on a decisive move without having to guess its direction beforehand.
