Market Wrap
Narratives
Investors had already been pricing out policy easing in the near-term, but more recently have begun to focus on medium- to long-term rates as well. Can current levels of longer-term interest rates be sustained? We’ve noted on several occasions in the past that we believe this to be the case, largely because we believe there has been a structural shift higher in the equilibrium level of rates that the economy can tolerate. Chair Powell chose not to weigh in on the topic, instead noting uncertainty in the level of neutral rates and the duration of lags with which monetary policy operates. Irrespective of the stance policymakers may adopt on this topic, markets appear to have moved on — Praveen Korapaty, Goldman Sachs
Week Ahead
It's going to be a hectic week in the United States as investors keep a close eye on the labor report, PCE price index, personal income and spending data, JOLTS job openings, ISM Manufacturing PMI, and the second estimate of Q2 GDP growth.
- On the inflation front, July's PCED (Thu) should show that inflation eased for the second month in a row, as did the last two CPI readings. Nevertheless, this past Friday, Fed Chair Jerome Powell reiterated that he is watching the core services PCED excluding housing, which has been stuck around 4%-5% for the past 12 months. Just as important will be August's average hourly earnings (Fri) measure of wage inflation. It has moderated significantly since last summer down to 4.4% in July. Powell has previously said that he would like to see it fall to around 3.0%.
- This will also be a big week on the employment front. July's JOLTS report (Tue) will include job openings data. Two other series we track show that job openings remained elevated last month. August's consumer confidence report (Tue) will include a series for "jobs plentiful," which will be more current than the JOLTS series on job openings. Powell has repeatedly said that he would like to see fewer job openings to reduce the upward pressure on wages.
- Personal income and consumption expenditures (Thu) will be featured at the end of the week with the latter likely to show more spending on goods during July, reflecting the strength in the month's retail sales, which were boosted by Amazon's Prime Day. August's employment report (Fri) is likely to show a relatively moderate increase of less than 200,000 in payrolls and solid real wage gains. So the report should confirm that consumers' purchasing power from earned income is more than offsetting rapidly depleting pandemic-related excess saving and the resumption of student loan payments. However, August's auto sales (Fri) might weaken as tighter lending conditions are pumping the industry's brakes.
- July's national M-PMI (Fri) is likely to show that the rolling recession in the goods sector may be bottoming. July's construction spending (Fri) might have gotten a slight boost from residential construction and the building of new factories. We'll be looking for signs that commercial construction is getting hit by tighter lending conditions - Yardeni Research
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔵 | 232.8 | 231.72 | 228.39 | January 1, 2023 |
Forward 4-qtr PE | ⚪️ | 18.9 | 18.9 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔴 | 5.28 | 5.3 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
SPX Implied Volatility | 🔴 | 13.44 | 14.35 | -0.91 | -6.34% |
SPX GEX Flip | 🔴 | 4,442.5 | 4,472.5 | -30 | -0.67% |
SPX Skew Adjusted GEX | 🔵 | -7,519,334,506 | -25,358,279,281 | 17,838,944,775 | 70.35% |
Equity Put/Call Ratio (CBOE) | 🔵 | 0.97 | 0.76 | 0.21 | 27.63% |
VIX Put/Call Ratio (CBOE) | 🔴 | 0.25 | 0.77 | -0.52 | -67.53% |
SPX/W Put/Call Ratio (CBOE) | 🔴 | 1.39 | 1.62 | -0.23 | -14.2% |
Futures
Sep E-mini S&P 500 futures settled at 4414.25 Friday, adding 28.25, in higher trade across the board. Overall volume was 1,862,843, with the Sep maturity seeing 1,853,335 traded. Total open interest shed 12,111, or 0.54%, to end the session with 2,234,627 outstanding. The Sep maturity lost 0.64% (12,111) to finish at 2,193,298.
Option trading centered around the August E4A 4425 calls with 7,489 changing hands and the August E5B 3725 puts with volume of 56,142. For Sep options, the 4450 calls were the most actively traded with 6,145 changing hands, and the high volume put was the 4350 strike with 4,740 contracts done. Calls with the highest open interest are the Sep 4700 strike (16,514), and for the puts are the August E5B 3725 strike (54,266).
Implied Volatility was sharply down with the 30-day at-the-money off 1.42%, to end at a one week low of 13.24%. The 30-day historical volatility closed gaining 0.14% to a one month high of 10.74%.
Bull v Bear
This Week (30d ATM IV 13.24% v 30d RVOL 10.74%)Bulls will seek to recapture DTF 1TFU > 4429 on a closing basis and ideally 4470. Upside: WHI 4485.50 → 50d MA 4487.50 are within +1σ (W) 4497 (+1.87%). WHI.1 4517.75 (+2.34%).Bears will seek to further extend 1TFD < WLO 4365.25 (-1.11%) on a closing basis. Downside: MLO 4350 is within -1σ (W) 4335 (-1.80%). Departure Gap and 4300 retest (-2.59%).
Last Week (4414.25 SEP23 +0.88%)Bulls will seek to recapture 4436.75 LH on a closing basis. Upside: WVAH 4463.25 (+1.83%). 50d MA 4484 (2.3%) is marginally above +1σ (W) 4473 (+2.06%).Bears will seek to further extend 1TFD < WLO 4350(-0.75%) and target the 4305.75 Departure Gap. Downside: < 4300 (-1.89%) is within -1σ (W) 4296 (-1.98%).
Indicators
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