Market Wrap
Narratives
As long as core-CPI doesn’t print at 0.1% or lower, then the path of least resistance will lead directly to 5.75% Fed funds. This read is based on:
- Following through on the September SEP will only serve to help the Fed’s credibility
- The government shutdown potential is high after November 17 (implying the upcoming meeting might be Powell’s best/only opportunity for a Q4 move)
- It’s in keeping with the Committee’s every-other-meeting cadence
- Recent Fedspeak has only reinforced the SEP forecast of 5.75% by year-end - Ian Lyngen and Ben Jeffery, BMO
Week Ahead
This is a big week for two big issues troubling the bond market, namely inflation and the US federal budget deficit. The BIG event will be September's CPI (Thursday). This time, September's PPI (Wednesday) will be released the day before instead of the day after the CPI. The headline inflation rates of both were inflated by energy prices, particularly gasoline prices.
- The core CPI will probably be inflated by an increase in heath insurance, which is a very funky and volatile component of the index. It was down 33.6% y/y during August while the more sensible PCED measure was up 3.3%.
- We are expecting that the CPI shelter inflation component will continue to moderate, offsetting some or all of the upticks in the other measures included in both the headline and core CPI. During August, the headline and core CPI inflation rates excluding shelter were only 2.0% and 2.2% y/y. In other words, they were already at the Fed's 2.0% target.
- The bond market's other major concern is the federal deficit. September's deficit (Thursday) is likely to show that it totaled $2.0 trillion during fiscal-year 2023, which ends in September. Excluding the pandemic years, that would be the widest fiscal-year deficit on record. And that's even though the economy has been growing.
- The biggest problem with this big problem is that Washington's net interest outlays rose to $633.7 billion over the past 12 months through August. It's doubled since July 2018. The average interest rate on the government's huge debt was 2.50%. The 2-year Treasury yield is over 5.00%. So this outlay will continue to grow faster than all the other major outlays and continue to widen the deficit in fiscal-year 2024 - Yardeni Research
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔵 | 239.93 | 232.95 | 228.39 | January 1, 2023 |
Forward 4-qtr PE | 🔴 | 18 | 18.5 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔵 | 5.56 | 5.43 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
SPX Implied Volatility | 🔴 | 15.4 | 15.5 | -0.1 | -0.65% |
SPX GEX Flip | 🔴 | 4,357.5 | 4,402.5 | -45 | -1.02% |
SPX Skew Adjusted GEX | 🔵 | -3,214,285,886 | -10,181,376,713 | 6,967,090,827 | 68.43% |
Equity Put/Call Ratio (CBOE) | 🔴 | 0.68 | 0.73 | -0.05 | -6.84% |
VIX Put/Call Ratio (CBOE) | 🔴 | 0.52 | 0.91 | -0.39 | -42.86% |
SPX/W Put/Call Ratio (CBOE) | 🔴 | 1.23 | 1.35 | -0.12 | -8.89% |
Futures
Friday's E-mini S&P 500 market was higher over a sizable trading range, with the Dec contract higher by 50.75 (1.18%), to 4341.50, a one week high. Overall, a heavy 2,220,892 contracts were traded, with 2,216,456 done in Dec. Total open interest lost 15,310, or 0.72%, to 2,100,990. Dec fell by 16,344 (0.78%), finishing at 2,080,095.
Option volumes were greatest for the Nov EW 4600 call (6,091) and the Oct E2A 3525 put (55,650). For Dec options, the 4400 calls were the most actively traded with 1,931 done, and the highest volume put was the 4000 strike with 2,366 contracts changing hands. Options with the largest open interest are the Oct EW3 100 call with 32,045, and the Oct E2A 3525 put with 57,197.
E-mini S&P 500 implied volatility ended the day moderately down as the 30-day at-the-money dropped 0.82% to finish the session at 15.41%, a one week low. Gaining 0.40%, historical volatility (as measured by the 30-day) closed the session at 12.29%.
Bull v Bear
This Week (30d ATM IV 15.41% v 30d RVOL 12.29%)Bulls will seek to break WHI and ideally HH 4371.25 (+0.69%) on a closing basis. Upside: Recapture 4400 (+1.35%) is within +1σ (W) 4432 (+2.08%). 50d MA 4455 (+2.61%) < +2σ (W) 4523.50 (+4.19%).Bears will seek to recapture 4300 (-0.96%) on a closing basis. Downside: WLO 4235.50 (-2.44%) is beyond -1σ (W) 4254.50 (-2.00%). 4200 (-3.26%) > -2σ (W) 4168 (-4.00%).
Last Week (4341.50 DEC23 -0.01%)Bulls will seek to recapture > WVAH 4317.25 and WHI 4383.50 (+1.34%) on closing basis. Upside: Recapture 4400 (+1.72%) is within +1σ (W) 4416 (+2.00%). 50d MA 4478 (+3.5%) < +2σ (W) 4507.Bears will seek to break < WVAL 4307.25 and ideally WLO 4277.00 (-1.12%) on a closing basis. Downside: 200d MA 4241 is within -1σ (W) 4238.50 (-2.01%). Q322 PB HI 4175 (-3.5%) > -2σ (W) 4152.
Indicators
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