Market Wrap
Narratives
Besides the obvious under-positioning dynamic, the key macro inputs behind the renewed re-risking confidence are about a re-pricing lower in left-tails and a re-pricing higher in right-tails. The Bank of Canada’s surprisingly explicit forward hold guidance (which accompanied Wednesday’s 25bps hike) is material for the macro vol compression story: they’re the first major central bank to transition from the prior outsized hikes to now into the final pause and reassess phase. That scenario is also potentially in play for the Fed after next week’s move which, obviously, is locked on 25bps. The consensus view is and was recession / trough / bottom in H1, before later we then see a Fed easing / market stabilizing and recovery in H2 mindset. Instead, resilient US services, labor and wages have helped to offset the obvious recession already underway in housing and manufacturing, while the outlook for global growth is being re-priced for the better in real-time. It’s early in the year; I think we see risk surprise to the upside, holding off the hard landing, before you get that come-to-Jesus moment sequenced thereafter — Charlie McElligott, Nomura
Week Ahead
The U.S. Federal Reserve is expected to announce that it is speeding up the end of its pandemic-era bond purchases and signal a turn to interest rate increases next year as a guard against surging inflation.
On the U.S. economic calendar, the Labor Department's closely watched employment report is scheduled for release on Friday. Nonfarm payrolls likely increased by 185,000 jobs in January, compared with a rise of 223,000 jobs in the month before. Unemployment rate likely gained 3.6% in January, following a 3.5% increase in December. The ADP National Employment report on Wednesday is expected to show private payrolls likely increased by 170,000 jobs in January.
Job openings likely fell to 10.200 million in December from 10.458 million in the previous month, the Labor Department is set to report on Wednesday in its monthly Job Openings and Labor Turnover Survey, or JOLTS report. On Tuesday, the Employment Cost Index, the broadest measure of labor costs, likely rose 1.1% in the fourth quarter, after increasing 1.2% in the previous quarter. The Labor Department on Thursday is expected to report initial claims for state unemployment benefits likely increased 14,000 to a seasonally adjusted 200,000 in the week ended Jan. 28. The Conference Board on Tuesday is expected to report its consumer confidence index increased to 109 in January from 108.3 in December.
On Thursday, the Commerce Department is expected to report factory orders likely rose 2.3% in December after dropping 1.8% in November. The Commerce Department on Wednesday is expected to report construction spending likely fell 0.1% in December, after climbing 0.2% in November. On Friday, the Institute for Supply Management is expected to report its non-manufacturing PMI likely climbed to 50.3 in January from 49.6 in December - Refinitiv
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 12-mo Estimate | 🔴 | 225.02 | 225.23 | 230.43 | September 30, 2022 |
Forward 12-mo PE | 🔵 | 18 | 17.5 | 15.5 | September 30, 2022 |
Nominal Earnings Yield | 🔴 | 5.53 | 5.7 | 6.43 | September 30, 2022 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
Implied Volatility | 🔴 | 16.5 | 17.56 | -6.04 | -6.04% |
Call Skew | 🔴 | -4.5 | -3.7 | -0.8 | -21.62% |
GEX Flip | ⚪️ | 4,002.5 | 3,962.5 | 40 | 1.01% |
Total GEX | 🔵 | 18,202,823,219 | 1,729,124,767 | 16,473,698,452 | 952.72% |
Skew Adjusted GEX | 🔵 | 5,211,468,288 | 495,048,421 | 4,716,419,867 | 952.72% |
Put/Call Ratio | ⚪️ | 1.94 | 1.92 | 0.02 | 1.04% |
Futures
March E-mini S&P 500 futures finished at a one month high of 4084.25 Friday, gaining 8.75. Across all maturities, the session saw 1,591,159 contracts done, with March volume coming in at 1,587,936. Total open interest added 9,236 (0.45%) to end the session with 2,054,986 outstanding. The March maturity increased 0.43%, or 9,236, to finish at 2,036,555.
The Jan EW 3525 put saw the most changing hands with 17,500 contracts traded. In March options, the most actively traded call was the 4200 strike with 4,421 done, and the 4050 put leads with volume of 2,690. Option open interest is largest for the Feb EW3 100 calls at 28,786, and the March 3600 puts at 37,993.
As measured by the 30-day at-the-money, implied volatility finished moderately down, off by 0.49% to close at a one week low of 16.32%. Historical volatility (30-day) ended the session at 18.17%, down by 0.0920%.
Bull v Bear
This Week (30d ATM 16.32% v 17.90% p)Bulls will seek to establish price acceptance > WHI 4109.25 (+0.61%) and ideally recapture the DEC HI 4141.50 (+1.4%) → FEB LO 4141.00. Upside: Q422 HI 4180 (+2.34%); 4200 (+ 2.83%); ‘22 YVAH 4243.50 (+3.9%) are within +2σ (W).Bears will seek to retrace and hold prior week value, ideally below 4057.25 and target a sweep to WVAL 4009.75 (-1.82%). Downside: 4000 (-2.06%); WLO 3963.25 (-2.96%); 200d MA 3957 (-3.12%); 50d MA 3943 (-3.46%) are within -2σ (W).
Last Week (4084.25 MAR23 +2.34%)Bulls will seek to recapture 4000, and ideally extend range > WHI 4035.25 (+1.17%) are within +1σ (W) expected. Upside: Q4 VAH 4085 (+2.42%); 4100 (+2.80%); DEC HI 4141.50 (+3.84% → extending MTF 1FU) are within +2σ (W).Bears will seek to defend 4000, and ideally offer below the 200d MA and flip GEX negative below 3962.50 (-0.65%). Downside: WVAL.1 3846.25 (-1.06%); 50d MA 3936 (-1.32%); WLO 3901.75 (-2.18%) are ≤ -1σ (W). $PUT Wall 3820 (-4.22%) marginally beyond -2σ (W) expected.
Indicators
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