financial markets still on a rollercoaster ride given the unknown impact of the coronavirus omicron variant and the federal reserve’s hawkish turn may be in for a fresh surprise when the next us consumer price index report is published friday  traders of derivativeslike instruments known as “fixings” are betting that the headline yearoveryear cpi reading for november will rise by 69 which would be the highest inflation level in almost four decades that’s a bit above the 67 median estimate of economists polled by the wall street journal  much is riding on getting the path of shortterm inflation just right higher inflation for longer would suggest the federal reserve needs to hike interest rates sooner and by possibly more than expected though the path of rates will also depend on how severely the omicron variant impacts the economy  fixings traders many of them from hedge funds and investment banks have proven to be closer to the mark than economists on actual cpi readings they are putting money on the line updating forecasts by the second instead of once or twice a month and relying on indepth analysis that includes taking into account volatile items like airfares and gas which others typically exclude in a few cases hedge funds that trade fixings on the uk’s cpi counterpart known as the retail price index have dispatched teams to scour the prices of everything from airfares to threebutton polo shirts according to one fund manager  “fixings have been more spoton than economists have been in general this year” said omair sharif president of the los angelesbased research firm inflation insights “that’s because fixings are not just about pure expectations for inflation they also have premiums built in to account for inflation being higher than what you would expect and obviously inflation came in stronger”  “there’s definitely a lot of money riding on it that’s for sure with people trying to get an edge and figure out what the data is going to look like” sharif said via phone “but having raw data is not enough you need someone who knows how to turn raw data into something that matches the methodology of the index”  headline us inflation readings have now come in at or above 5 or more than twice the fed’s 2 target for six straight months and another elevated number will only substantiate the fed’s view that inflation can no longer be seen as transitory the jury is still out though on whether the omicron variant will lead to more lockdowns and an economic slowdown or keep supply chains disrupted and fan further price rises   while both traders and economists have underestimated the strength of price pressures this year fixings which are related to the roughly 16 trillion market for treasury inflationprotected securities have been more on point   earlier this year for example fixings traded at levels that implied the headline annual cpi rate would come in at 37 49 and 51 respectively for april may and june actual readings turned out to be 42 5 and 54 putting fixings closer than economists’ median estimates of 36 47 and 5  by the nov 10 release of the last cpi reading though economists had moved in line with traders with a median forecast for a headline annual rate of 59 in october the actual reading was 62 the highest in nearly 31 years  a difference of 30 basis points or more like those for april june and october still amounts to “a very big miss” in the fixings market where the most money is made by coming within 10 basis points of an actual reading says gang hu an inflation trader with new york hedge fund winshore capital partners  as of friday hu says fixings were trading at levels that imply the annual headline cpi rate will be at or above 7 from december through february even after the us produced its smallest job gains of the year  “if anything the fixings have actually undershot the actual prints all year” said chris mcreynolds head of us inflation trading for barclays plc barc in new york while some might be “shocked” when they see the next cpi prints “i believe that most of the world of finance has opened their eyes to inflation risks and are cognizant of the upside risks”  want intel on all the news moving markets sign up for our daily need to know newsletter use this link to subscribe  fixings have demonstrated their most enduring predictive power in the uk where traders have “been accurate or very close” for the past 12 months said adam skerry a londonbased rates and inflation fund manager at abrdn abdn  formerly known as aberdeen standard investments skerry says he relies on fixings to gauge the shortterm “direction of travel” in inflation and to help him trade everything from 5year inflation swaps to shortdated tips  “the fixings market never used to be focused on much because it was based on monthtomonth readings that were too volatile” skerry said via phone “but now that we’re getting inflation breaking out of ranges there’s been a lot more emphasis on it shortdated fixings have become more liquid and can be traded more accurately allowing some investors to make money out of this”  back in the us markets have turned volatile at a time when the era of great moderation characterized by low inflation decreased volatility and a central bank that hasn’t needed to move policy rates to extreme levels appears to be ending after three decades according to skerry   the past week’s market action offers a glimpse of the volatility that may still be in store on tuesday major stock indexes and longdated treasury yields tumbled after fed chairman jerome powell dropped the word “transitory” from the central bank’s inflation description and suggested a fasterthanexpected timeline might be needed for tapering bond purchases  markets attempted to recover over the next three days with dow industrials undergoing a wild almost 1000point swing on wednesday before producing their best percentage gain since early march the next day but by friday all three major stock indexes were nursing weekly losses while the 10 and 30year yields had respectively fallen to their lowest levels since september and january   for markets what’s perhaps more important than the headline cpi rate on friday are the details underlying the data such as whether there are signs of price pressures continuing to seep broadly across sectors analysts say  the next cpi figure “doesn’t have to come in bigger” said gregory faranello head of us rates at amerivet securities in new york “it can be more of the same to keep the fed on course for a quicker taper and make investors nervous there’s no indication the numbers are going to get meaningfully lower in the short term we’re seeing this in the volatility right now and we expect more to come”   what’s on the us economic calendar   initial and continuing jobless claims at 830 am   consumer price index and cpi yearoveryear change at 830 am fed officials enter a blackout period ahead of their dec 1415 meeting in washington