VXX: Trading Volatility In January

When it comes to volatility, 2016 went out with a whimper. That could all change in January, as traders begin to look for a more tangible justification for the stock market’s latest bull run. The Chicago Board Options Exchange (CBOE) Volatility Index, also known as the “fear index,” measures expectations of implied volatility over the next 30 days as conveyed by S&P 500 Index option prices. Below is a list of key market-moving events that could spark volatility during the month of January.

January 4: Eurozone CPI (December), FOMC Minutes (December)

The European Commission’s statistics branch will release preliminary inflation figures for the month of December. Inflation data have direct implications on the European Central Bank (ECB), which only last month extended its bond-buying program by an additional nine months.

The minutes of the December 13-14 Federal Open Market Committee (FOMC) meeting will be also released on January 4. The Fed voted to raise interest rates by 25 basis points in December for the first time in a year and struck a more hawkish tone about the pace and timing of future hikes. A similarly hawkish reading of the FOMC minutes could elicit a volatile response from the financial markets.

January 6: US Nonfarm Payrolls (December)

US nonfarm payrolls is arguably the most closely followed economic event of the month. US employers added 178,000 nonfarm jobs in November. Another similar reading for December will feed into expectations about the US economy and Federal Reserve policy. These expectations will may have a direct impact on the S&P 500 Index.

January 18: US CPI (December), US Industrial Production (December), Federal Reserve Interest Rate Decision

January 18 might be a highly volatile day for the US stock market. The Labor Department will release December consumer inflation data. Faster inflation expectations were part of the Fed’s justification for raising interest rates in December. Evidence of stronger inflationary pressures will only affirm the view that central bank policy may gradually tighten throughout 2017.

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