Market Wrap
Narratives
With the increased issuance to come after the debt ceiling is lifted we expect the front-end of the T-bill curve to come under pressure. The sharp rise in collateral should pressure repo rates higher. Many of the same factors that caused SOFR to rise well above the Fed’s target range in September 2019 are lining up again this year. The confluence of factors blamed for the September 2019 incident were: 1) bill settlements and the mid-September tax date pulling liquidity out of the market; 2) the end of the Fed hiking cycle and continuation of QT; 3) hedge funds using the repo market to fund Treasury cash-futures basis trades; and 4) bank balance sheet constraints. Suffice it to say all of these factors could be repeated this fall as the Treasury ramps up bill issuance in September, the Fed has likely reached its terminal rate but QT continues, the “hedge fund trade with a history of blowups is back again” and the regional banking stress that is forcing banks into a defensive stance is making regulatory relief on leverage and liquidity ratios very unlikely — Subadra Rajappa, SocGen
Week Ahead
In the US, investors will be closely following the debt ceiling negotiations. Hopes for a quick deal were dashed on Friday after Republican negotiators walked out of a meeting, stating that the White House demands were unreasonable. Attention will also be given to the Fed meeting minutes and speeches by several Fed officials. Expectations for another rate hike increased during the week due to strong data, but on Friday, Fed Chair Powell stated that it might be unnecessary to raise rates to curb inflation because of stress in the banking sector.
Additionally, several important data releases will occur, including personal outlays and income data, durable goods orders, flash PMI data from S&P Global, and new and pending home sales. Consumer spending is anticipated to rise slightly in April following a period of stagnation the previous month, while orders for US-manufactured durable goods are likely to decline after a notable rise in March. Furthermore, traders will be closely monitoring the advance estimate of wholesale inventories, and second estimates of first-quarter GDP figures. Regional activity indexes, such as the Richmond Fed Manufacturing Index, Chicago Fed National Activity Index, and Kansas Fed Manufacturing Index, will also be under scrutiny.
As the earnings season unfolds, several prominent companies will report their financial results, including Zoom, Intuit, Palo Alto Networks, XPeng, NVIDIA, Snowflake, Medtronic, and Costco Wholesale - TradingEconomics
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
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Forward 12-mo Estimate | 🔴 | 224.38 | 224.61 | 228.39 | January 1, 2023 |
Forward 12-mo PE | 🔴 | 18.6 | 18.7 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔴 | 5.35 | 5.47 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
SPX Implied Volatility | 🔴 | 13.6 | 13.69 | -0.09 | -0.66% |
SPX GEX Flip | 🔵 | 4,147.5 | 4,127.5 | 20 | 0.48% |
SPX Skew Adjusted GEX | 🔵 | 14,846,030,036 | -1,620,815,867 | 16,466,845,903 | 1,016% |
Equity Put/Call Ratio (CBOE) | 🔴 | 0.56 | 0.7 | -0.14 | -20% |
VIX Put/Call Ratio (CBOE) | 🔴 | 0.47 | 0.49 | -0.02 | -4.08% |
SPX/W Put/Call Ratio (CBOE) | ⚪️ | 1.38 | 1.38 | 0 | 0% |
OEX Put/Call Ratio (CBOE) | 🔵 | 3.91 | 0.22 | 3.69 | 1,677.27% |
Futures
June E-mini S&P 500 futures settled at 4204.75 Friday, down by 7.25, in lower trade across the board. Overall, 1,720,441 contracts were traded, with 1,713,351 done in June. Combined open interest closed the session at a one month high of 2,401,148, higher by 5,771, or 0.24%. June open interest rose by 4,237 (0.18%), to 2,360,685.
The May E4A 3625 put saw the most changing hands with 12,852 contracts done. In June options, the most actively traded call was the 4300 strike with 5,766 changing hands, and the 4200 put leads with volume of 5,794. Option open interest is highest for the June EW3 100 calls at 36,655, and the May E4A 3475 puts at 64,141.
As measured by the 30-day at-the-money, implied volatility ended moderately up, gaining 0.56% to close the session at 10.81%. Historical volatility (30-day) finished the day at 12.87%, higher by 0.0185%, to a one week high.
Bull v Bear
This Week (30d ATM 10.81% v 13.27% p)Bulls will seek to break WHI 4227.25 on a closing basis and continue to build price acceptance above. Upside: > Q421 LO BOS 4260 (+1.31%) is within +1σ (W) 4289 (+2.00%).Bears will seek to break PLO < 4191.50 and ideally the 4172.50 swing low on a closing basis. Downside: < WLO 4120 (-2.02%); WLO.1 4111.75 (-2.21%) are beyond -1σ (W) 4123.50 (-1.93%).
Last Week (4204.75 JUN23 +1.61%)Bulls will seek to break WHI 4167.00 and ideally recapture WHI.1 4206.25. Upside: > YTD HI 4208.50 (+1.7%); HH 4217.25 (+1.92%) are within +1σ (W) 4222.25 (+2.04%).Bears will seek to extend 1TFD < WLO 4111.75 on a closing basis. Downside: < 4100(-0.92%); APR LO 4068.75 (-1.67%); WLO.1~50d MA 4062.25 (-1.83%) are within -1σ (W) 4057 (-1.96%).
Indicators
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