How CPI, jobs reports and Fed days move stocks, and how to plan around them

Why these three move stocks

Dozens of scheduled US releases land every month and most of them move nothing. Three reliably move the whole market, and they share one thing: each changes what traders expect the Federal Reserve to do with interest rates.

That is the channel nearly everything runs through. Rates set the return on the safe alternative to owning stocks and the rate future earnings get discounted at. When expected rates rise, Treasury yields rise, the dollar tends to firm and stocks tend to come under pressure, with the Nasdaq usually feeling it most because more of its value sits in earnings a long way off. When expected rates fall, the same chain runs the other way.

Which way a surprise pushes stocks also depends on what the market is worried about. When inflation is the fear, a strong economy reads as a reason for the Fed to keep rates high, and good news for the economy becomes bad news for stocks. When a slowdown is the fear, the same strong number reads as relief. The release hasn't changed. The question the market is asking has.

One more trap. Most release guides describe the reaction of the dollar or of bonds, not of stocks, and the two often disagree. A hot inflation print usually lifts the dollar and sells stocks at the same time, so a calendar that marks a hot reading as bullish may be describing the opposite of what it does to a long position in the index.

When they land

All three are scheduled months in advance. The times below are US Eastern, and for most of the year 8:30 AM ET is 1:30 PM in London.

The timing matters as much as the release. A number at 8:30 AM gives the market an hour to digest it before the cash open, and the session usually spends the day working out what it decided. A decision at 2:00 PM does the opposite: it hangs over the whole morning, because nobody wants to commit size until it is out. The same news at a different hour makes a different day, which our guide to telling a trending day from a choppy one goes into further.

CPI: the inflation print

The Consumer Price Index measures the change in prices for a fixed basket of goods and services bought by urban consumers. The Bureau of Labor Statistics publishes it at 8:30 AM ET, usually in the second week of the month. Whenever inflation is what the Fed is worried about, it is the most closely watched number on the calendar.

The release carries several figures and they don't matter equally. Headline CPI includes food and energy, which swing with oil prices and harvests. Core CPI strips them out and is the better read on the underlying trend, so it is the one most desks look at first. Each is reported as a change on the month and on the year, and the monthly change in core is the freshest signal, because the yearly figure still carries eleven months of old data.

Two details catch people out. The Fed's 2% target is defined against a different measure, the PCE price index, which comes out later in the month. CPI moves the market anyway, because it arrives first and forecasters can estimate much of PCE from it. And shelter costs make up roughly a third of the index while lagging real-world rents by many months, which can hold measured inflation up after the pressure behind it has eased.

The jobs report

The Employment Situation report, better known as the jobs report or non-farm payrolls, comes from the Bureau of Labor Statistics at 8:30 AM ET, usually on the first Friday of the month. It is the first full read on the labour market each month, and employment is half of the Fed's mandate.

It is really three numbers from two surveys. Non-farm payrolls, the net number of jobs added, come from a survey of employers. The unemployment rate comes from a separate survey of households. Average hourly earnings, the growth in pay, comes from the employer survey and is the inflation half of the report, because fast wage growth feeds into prices. Three things matter beyond the headline:

• Revisions. The previous two months are revised in every report, and the revisions are often bigger than the surprise in the new number. A strong headline on top of large downward revisions is not a strong report.
• Wages. A payroll beat with hot earnings reads very differently from a payroll beat with soft earnings, because only one of them is an inflation problem.
• The two surveys disagreeing. Payrolls and the unemployment rate can point different ways for months, and the market does not always believe the same one.

The jobs report is the clearest example of the market changing its question. When inflation is the worry, a big payroll number can sell stocks, because it gives the Fed room to hold rates high. When recession is the worry, the same number can rally them. Working out which of those markets you are in before 8:30 is most of the job.

It has smaller siblings worth knowing: initial jobless claims every Thursday at 8:30 AM ET, and the JOLTS job openings survey at 10:00 AM. Neither usually moves the market like payrolls, but when the Fed is watching the labour market closely, either one can.

Fed days: the statement, the dots and the press conference

The Federal Open Market Committee meets eight times a year on a published schedule and announces its rate decision at 2:00 PM ET on the last day of the meeting. The Chair's press conference follows at 2:30. Four of the eight meetings, in March, June, September and December, also publish the Summary of Economic Projections, including the dot plot of where each official expects rates to go.

The decision itself rarely surprises anyone. Futures markets price the odds of each outcome for weeks beforehand, and the Fed generally avoids surprising them. What moves markets is everything around the decision: a change in the statement's wording from the last one, a dissenting vote, a shift in the projected path of rates, and above all the tone of the press conference.

That gives the day a recognisable shape. The morning tends to drift, because nobody wants to commit before 2:00. The statement lands and the market jumps. Half an hour later the press conference starts, and the market frequently takes back some or all of that first move as the Chair answers questions. Two repricings in an hour, on thin afternoon liquidity, is a hard environment for most intraday strategies.

The minutes of each meeting follow three weeks later, also at 2:00 PM ET. They rarely move the market as much as the decision, but they can when they reveal a debate the statement smoothed over.

The first reaction is not the day

The first seconds after a major release are the least tradeable of the session. Liquidity thins out ahead of the number as market makers pull their orders, spreads widen, and the opening move is driven by algorithms reading the headline figure before anyone has read the detail. Stops placed close to the price can fill well beyond where they were set.

That first move is also often wrong, or at least incomplete. The headline can beat while the revisions or core inflation point the other way, and it takes the market a few minutes to work through the whole release. A sharp move one way followed by a full reversal inside the first half hour is a familiar sight on release days.

Index futures get a second checkpoint: the cash open at 9:30 AM ET, when the full stock market starts trading and the volume arrives. A reaction that holds through the open has been confirmed by a much larger pool of money than the one that set it at 8:30. A reaction that fades into the open was often early positioning unwinding.

A plan for release days

None of this needs a prediction about the number. It needs a routine decided before the release, while you have nothing riding on it.

• Check the calendar first. Know what lands today, at what time, and whether it falls before the open or inside the session. A 2:00 PM release changes the plan for the whole morning.
• Decide whether you will hold anything through it. For most intraday traders the default is flat. Holding through a number should be a choice made in advance, not something that happened because a trade was still open.
• Know the forecast. You can't read a surprise without knowing what was expected, and the financial press publishes consensus forecasts ahead of every major release.
• Let the first reaction settle. Wait for the initial spike and any reversal to play out. On an 8:30 release, the cash open is a natural point to check whether the move has held.
• Size for the day you are actually in. Release days bring bigger ranges and worse fills. If you trade, trade smaller than on a normal day, and accept that some release days aren't worth trading at all.