Bank of America analysts say that in September,non-farm payroll datait’s good news for the market, but it gives investors more reasons to prepare for the latest inflation data.

Analysts say that last week's blockbuster jobs report has put greater pressure on this week's Consumer Price Index (CPI) data. If the data unexpectedly rises significantly, it is now more likely to trigger a wave of market volatility. They say that the CPI data scheduled to be released on Thursday is no longer 'a non-event'.

In a report on Sunday, analysts said, 'Following last Friday's gushing jobs report, we believe the importance of this week's CPI has increased. A fairly large surprise could bring uncertainty to the easing cycle and bring more volatility to the market.'

They point out,option pricesReflecting the release of the CPI on Thursday, the S&P 500 index is projected to move by 109 basis points, slightly higher than 1%, compared to the previous estimate of 91 basis points. This would exceed the three-month average volatility of 70 basis points for the index on the day of the CPI release, marking the largest potential fluctuation since the May CPI report.

"From a positive perspective, analysts suggest that if combined with strong macroeconomic data, the stock market should be able to withstand a slight unexpected uptick."

"As long as inflation does not spike again, good news is good news for the stock market," analysts stated, adding that historically, when inflation drops, stocks and rates rise, whereas when inflation trends upward, the stock market and rates decline.

Economists predict that the CPI report will indicate a continued cooling of inflation from last month, with a year-on-year increase of 2.3%, down from 2.5% in August.

With the inflation rate slightly easing back to the target level of 2%, after years of grappling with inflation, the Federal Reserve is now increasingly focusing on the labor market. This shift was a key factor behind their decision to significantly cut interest rates by 50 basis points last month.

"However, following the unexpectedly strong employment report in September, some economists express concerns that inflation remains a worrisome issue. If this week's CPI data shows an unexpected uptick, the Federal Reserve may be forced to refocus on price pressures in the economy."

"The CPI in September will be a crucial data point. If prices rise faster than expected, coupled with a strong labor data, the possibility of the Federal Reserve staying put at the November meeting will increase," UBS Group economist Brian Rose expressed in a report last Friday.

According to the data from the CME FedWatch tool, following the release of the September employment report, the likelihood of a 50-basis-point rate cut by the Federal Reserve next month dropped from 33% to zero. Traders are now not even fully pricing in a 25-basis-point cut. Therefore, the CPI reading on Thursday has heightened the significance for the Federal Reserve's next steps.

Editor/rice