Heads up: Any US CPI fireworks may fizzle out as Veterans Day holiday looms
The market is ready for some late night fireworks from the US CPI report later today but what happens if half the people decide not to show up for the after party to follow? That's something worth keeping in mind as we head towards tomorrow.
Wednesday will be a partial US market holiday in observance of Veterans Day and the timing is made rather awkward with the CPI report due later today.
The US bond market will be closed tomorrow but the NYSE and Nasdaq will remain open for trading as usual. However, don't mistake that for being business as usual on Wall Street.
Big banks and major fixed-income desks will be out of action. So if anything, I would expect thinner participation and potentially less conviction behind any sudden market moves. That especially after traders get their hands on the latest US inflation numbers today.
It would be less complicated if the inflation data only moves the stock market. However, Treasury yields are often at the heart of the reaction and that will in turn feed into the dollar, equities, and broader risk sentiment.
As such, when you take the bond market out of the equation tomorrow then suddenly we're missing one of the biggest drivers of that price discovery and gauge of market sentiment.
So, what does this mean for traders exactly?
If the US CPI report today delivers a major surprise, we could see the initial reaction carry through into tomorrow. But without meaningful Treasury market participation, the follow-through might struggle to find much traction.
There's another catch to all of this though. Thinner liquidity conditions don't necessarily mean smaller market moves. Such a situation can also exaggerate price swings, particularly if a large order hits when there aren't enough buyers or sellers on the other side.
As such, don't be too surprised if we get some choppy, directionless trading or even sudden moves that don't quite have the conviction to stick.
If anything, the bigger test will come on Thursday when the bond market returns and traders can properly reassess the inflation story with fuller participation. So until then, I'd be wary of reading too much into tomorrow's price action as markets might not be describing the full story. Sometimes, it can simply just be a case of having fewer people in the room.