As we previewed earlier this week, only one number matters for the markets – both stocks and bonds – this week, and it will be released at 8:30 am this morning, when the BLS unveils the January CPI print, dubbed by various trading desks as “the most important CPI print ever”, with every trader, both carbon and semiconductor-based, focusing only on whether core CPI comes at 0.2% as expected, or higher. If it’s the latter, TSY yields will spike – conventional wisdom goes – while the second leg of the equity rout could be unleashed. Inversely, if the core CPI disappoints, we may see a sharp move lower in 10Y yields and the dollar, while stocks prepare to retest all-time highs.

“Since the last payrolls about two weeks ago, inflation is the obsession of traders,” Pierre Martin, a trader at Saxo Bank in Zurich, told Bloomberg. “Given the selloff in stocks and with a lot of brokers pushing clients to buy the dip, people are trying to position themselves ahead of the CPI figures today. The sentiment is that a lot has been priced in already, but I’m a bit more cautious and wouldn’t be surprised to see volatility aftershocks in the coming days,” Martin said.

There have been no volatility shocks for now, however, as one look at the futures and global stocks ahead of today’s CPI shows not only the inverse of yesterday’s early sea of red (which quickly turned green) but broad consensus – for now at least – that either the CPI number will disappoint or the market will promptly decide it does not matter if it indicates the economy is overheating.

Following another day of strong gains around the globe, S&P index futures extended gains, hitting a session high as European opened when the E-mini ran upside stops through Monday highs, although gains have since been somewhat pared back. March contracts on the S&P 500 rose 0.4 percent just after 6 am ET, fluctuating during Asian trading hours. Futures on the Dow Jones Industrial Average added 0.6 percent, while the Nasdaq 100 Index was up 0.6 percent.

Also keep in mind that even if the CPI proves to be a dud, today is the monthly VIX options expiration. Counting puts and calls, there are 15.4 million VIX options outstanding, and 40% of them mature today. The move has the potential to spark substantial market volatility.

Ahead of the CPI, traders were again keenly focused on the second day of drama in the USD/JPY which as noted overnight, took out a huge barrier as the Japanese currency hit a fresh 15-month high only to see dollar buyers emerge on break below 107.00 amid concerns faster U.S. inflation will drive down stocks. Both the Nikkei (-0.4%) and Topix (-0.8%) closed red as a result. However, after the European open, the Yen lost some ground as the dollar rebounded after its 4th consecutive day of losses, and at last check the USD/JPY was trading around 107.40.

As Bloomberg notes, USD/JPY recovered back to 107.50 after breaking below 107.00 in Asian session, leading to broader recovery for USD across G-10, DXY comes back to flat.

In other currencies, the ZAR rallied after ANC confirmed a no-confidence vote in Zuma for tomorrow, while the SEK eventually weakened as Riksbank stresses lack of confidence in inflation levels.

Equity trading during the Asian session was mixed as the region failed to sustain upward US. Australia’s ASX 200 (-0.3%) was subdued amid underperformance in its largest weighted financial sector as banks mulled over the Australian Prudential Regulatory Authority’s discussion paper on the application of a future leverage ratio, while Nikkei 225 (-0.4%) underperformed after disappointing Q4 GDP data and as exporters suffered the ill-effects of the soaring Yen. 

Elsewhere, Shanghai Comp. (+0.5%) and Hang Seng (+2.3%) were resilient with Hong Kong propped up by strength among financials.  Hong Kong’s Hang Seng Index rose 2.6% – it biggest daily gain since May 2016 – and the Hang Seng China Enterprises Index climbed 2.8%, with banks leading the gains as U.S. futures jumped. Hang Seng Bank was the best performer on Hang Seng, rising 7.3% and heading for biggest daily gain since May 2009; co.’s rating and price target raised at Goldman. The mainland Shanghai Composite and CSI 300 indexes were cautiously higher as Chinese markets wind down for lunar new year break.

European stocks also advanced as investors assess earnings figures from companies including Natixis and Credit Suisse. The Stoxx Europe 600 Index rose 0.6% in a broad rally. Banks were the best-performing industry group as Natixis and Credit Suisse lead gains. Sky climbed 3.2%, among the best gainers on the Stoxx 600, after the company secured its position as leading broadcaster of Premier League soccer for the next three-year cycle, reducing the cost per match by 16%.

Meanwhile, after 10Y yields sunk to session lows around midnight, just above 2.80%, treasuries rebounded with futures and the dollar, rising to 2.84%; there was bull-flattening observed in both JGB and Aussie curves amid wider risk-off. Once again, if the CPI surprises to the upside, watch as the 10Y yield jumps above 2.90% on its way to 3.00% and beyond.

Elsewhere, WTI and Brent crude futures traded lower in the wake of yesterday’s build in API inventories ahead of today’s DoE release with a focus on US production figures which climbed above the 10mln bpd level last week and surpassed that of Saudi Arabia. In terms of recent energy commentary, the Saudi Oil Minister Al Falih says Saudi Arabia will invest for maximum oil output capacity and thus shows no signing of caving to the ongoing surge in US production. In metals markets, spot gold is modestly firmer, tracking fluctuations in the USD, while Copper saw its largest jump since October during Asia-Pac trade as shorts were covered ahead of the Lunar New Year and Dalian Iron Ore printed 3-week highs.

In other news, the South African police have raided Gupta family’s home. Ajay, Atul, and Tony Gupta are accused of using their friendship with Mr. Zuma to control state appointments and contracts, claims they and the president have denied, the FT reported… There were also reports that Zuma was arrested but this was dismissed as fake news by the South African police minister Mbalula. Later it was reported that South African ANC have pushed for a motion of no confidence against Zuma for tomorrow.