Market Wrap
Narratives
Past central bank reflexive easing conditioning has affected the market’s interpretation of monetary policy signals (i.e., perception of the ‘Fed Put’), and even more importantly, leaving us with still extraordinarily large central bank balance sheets which act to inhibit the rate hike transmission, explaining why financial conditions aren’t actually tight. The natural / neutral rate is likely much higher than previously suspected. From a consumer / economic pass-through perspective, the direct government fiscal transfers to the lowest — but largest — part of the income distribution in the post-COVID response, have also acted to reduce the interest-rate sensitivity of the economy, as a lot of buffer was accumulated. The additional fiscal input which has acted to neuter higher rates’ impact on the economy and help to push off a recession is the almost wholesale high wage increases seen across labor and lower-skill in particular, with a similar impact to the aforementioned government fiscal transfers. Finally, home owners’ equity in real estate as a percentage of GDP is currently at all-time highs, which has been allowing boomer-to-millennial homeowners the ability to cash out massive (home equity) lines of credit and help stave-off the pain of inflation and higher interest rates — Charlie McElligott, Nomura
Week Ahead
In the US, the Federal Open Market Committee (FOMC) Meeting minutes and speeches by Federal Reserve officials will be closely watched this week. This is due to recent economic data which has fueled speculations of the Fed raising rates more than it did at the beginning of the month, and for a longer period. January's higher-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) figures are likely to push the Fed's preferred inflation gauge higher. Additionally, personal spending and income data is anticipated to show consumer spending is resilient after January's strong retail sales report.
Other key economic releases include the second estimate for the fourth-quarter Gross Domestic Product (GDP), which is expected to be revised upwards to 2.9% from the 2.8% preliminary figure. The University of Michigan's consumer sentiment and the S&P Global PMIs for February will also be in focus. Further, existing and new home sales will provide insight into the real estate market. The Q422 earnings season ends next week (unofficially speaking) with Walmart reporting their holiday quarter or rather their 4th fiscal quarter of the 2023 fiscal year; Home Depot and Nvidia will also report results.
Canada will publish their January CPI report and retail sales figures for December - TradingEconomics
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 12-mo Estimate | 🔴 | 222.36 | 222.43 | 230.43 | September 30, 2022 |
Forward 12-mo PE | 🔴 | 18.3 | 18.5 | 15.5 | September 30, 2022 |
Nominal Earnings Yield | 🔵 | 5.45 | 5.44 | 6.43 | September 30, 2022 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
Implied Volatility | ⚪️ | 17.6 | 18.5 | -0.9 | -4.86% |
Call Skew | 🔴 | -6.6 | -4.5 | -2.1 | -46.67% |
GEX Flip | ⚪️ | 4,097.5 | 4,077.5 | 20 | 0.49% |
Total GEX | 🔴 | -4,258,538,843 | 2,702,556,941 | -6,961,095,784 | -257.57% |
Skew Adjusted GEX | 🔴 | -2,776,567,326 | 1,224,258,294 | -4,000,825,620 | -326.8% |
Put/Call Ratio | 🔵 | 2.05 | 1.93 | 0.12 | 6.22% |
Futures
Friday's E-mini S&P 500 market closed lower, with the March contract down 12.25 points to 4087.50, a one-week low. A total of 2,012,129 contracts were traded, with 2,008,448 in March. Open interest decreased by 4,627 (0.22%), with March decreasing by 4,786, or 0.23%, to 2,042,684.
The February E4C 3400 put saw the most activity with 17,220 contracts traded. The highest volume of March option trading was seen in the 4300 calls (4,575) and the 3700 puts (6,530). The March EW3 2100 calls had the greatest open interest of 21,794, and the 3600 puts had 36,281.
Implied volatility ended the session sharply higher, with the 30-day at-the-money option gaining 4.70% and settling at a one month high of 22.37%. The 30-day historical volatility dropped 1.11% to a twelve year low of 15.37%. The spread between the implied and historical volatilities increased by 5.81%, settling at a one month high of 6.99%.
Bull v Bear
This Week (30d ATM 22.37% v 18.34% p)Bulls will seek to recapture 4100 and ideally the January HI 4109.25 (+0.54%) on a closing basis. Upside: WPOC 4131.50 (+1.08%); WVAH 4156.25 (+1.68%); WHI 4186.50 (+2.46%) are ≤ +1σ (W) +2.41%.Bears will seek to maintain price acceptance < 4100 and ideally < WLO 4055.75 (-0.78%) on a closing basis. Downside: JAN Breakout 4035.25 (-1.28%); Q422 POC 4000 (-2.14%); 50d MA 3990 (-2.39%) are ≤ -1σ (W) 3993 (-2.39%).
Last Week (4087.50 MAR23 -0.28%)Bulls will seek to recapture the 4100 → 4200 TR and ideally above WPOC 4124 (+0.59%) on a closing basis. Upside: Recapture DEC HI 4141.50 (+1.02%); WVAH 4165 (+1.59%); WHI 4188.25 (+2.16%); 2023 HI 4208.50 (+2.65%); 4250 Strike (+3.66%) are within +2σ (W) 4303 (+4.96%).Bears will seek to offer and build acceptance < WLO 4060.75 (Weak -0.95%) creating scope for a sweep of the January Value Area. Downside: 2022 → Present POC 4005.25 (-2.31%); 50d MA 3981 (-2.9%); OCT HI 3955.75 → 200d MA 3952.00 (-3.6%) are within -2σ (W) 3908 (-4.66%).
Indicators
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