Market Wrap
The SPX closed 1.1% down in an uneventful session, as the OPEX-induced momentum is slowly waning ahead of some possibly very consequential data points ahead, starting with the CPI print on Wednesday.
Current consensus calls for a 8.8 percent increase in June year over year, after 8.6 percent previously, but UBS thinks a 9.0 (!) percent print is likely - a number that could certainly spark violent moves in the market given the current gamma imbalances.
Adding to that uncertainty, analysts took a second look at the Nonfarm Payroll Report from Friday that had a sobering effect. Goldman for instance discussed the discrepancy between the two surveys, which we also pointed out recently:
“While the household survey is much noisier than the establishment survey on a month-to-month basis, it picks up changes in net new firm creation in real time and therefore often outperforms the establishment survey at cyclical turning points, provided both measures are averaged over several months. This suggests that thestill-robust nonfarm payroll prints of recent months probably overstate true job growth.”
The strong credit impulse in China was not able to counter the negative sentiment stemming from renewed Covid concerns in Asia, but here is some color from HSBC that underscores the magnitude of the new money creation:
“China’s credit data surprised on the upside as medium and longer-term corporate lending rebounded and government bond issuance reached a record high on the back of a policy push to issue the remainder of this year’s special local government bond quota. TSF growth rose to 10.8% y-o-y,the fastest pace in a year, whilenew bank lending rose by 11.2% y-o-y. Meanwhile, M2 growth also edged up to 11.4% y-o-yon the back of increased liquidity injections in June.”
Gamma Discussion
Dealer gamma decreased by 167M to -477M, while put volume was high at lower strikes like 3600 and especially at 3400, but overall put volume (as well as call volume) was below trend.
Even though hedging demand seems very depressed at the moment, we want to point out, that the SKEW index is showing some signs of life again, and also VVIX and VIX seem to reconsider their underperformance and are now pricing in risk more adequately.
Outlook
Tomorrow will bring the important German ZEW print, the OPEC report and the EIA short-term Outlook, while the WASDE Report will shine more light on the soft commodity situation. At 13:00 Eastern the results of a 10Y auction will get released.
Current consensus calls for a 8.8 percent increase in June year over year, after 8.6 percent previously, but UBS thinks a 9.0 (!) percent print is likely - a number that could certainly spark violent moves in the market given the current gamma imbalances.
Adding to that uncertainty, analysts took a second look at the Nonfarm Payroll Report from Friday that had a sobering effect. Goldman for instance discussed the discrepancy between the two surveys, which we also pointed out recently:
“While the household survey is much noisier than the establishment survey on a month-to-month basis, it picks up changes in net new firm creation in real time and therefore often outperforms the establishment survey at cyclical turning points, provided both measures are averaged over several months. This suggests that thestill-robust nonfarm payroll prints of recent months probably overstate true job growth.”
The strong credit impulse in China was not able to counter the negative sentiment stemming from renewed Covid concerns in Asia, but here is some color from HSBC that underscores the magnitude of the new money creation:
“China’s credit data surprised on the upside as medium and longer-term corporate lending rebounded and government bond issuance reached a record high on the back of a policy push to issue the remainder of this year’s special local government bond quota. TSF growth rose to 10.8% y-o-y,the fastest pace in a year, whilenew bank lending rose by 11.2% y-o-y. Meanwhile, M2 growth also edged up to 11.4% y-o-yon the back of increased liquidity injections in June.”
Gamma Discussion
Dealer gamma decreased by 167M to -477M, while put volume was high at lower strikes like 3600 and especially at 3400, but overall put volume (as well as call volume) was below trend.
Even though hedging demand seems very depressed at the moment, we want to point out, that the SKEW index is showing some signs of life again, and also VVIX and VIX seem to reconsider their underperformance and are now pricing in risk more adequately.
Outlook
Tomorrow will bring the important German ZEW print, the OPEC report and the EIA short-term Outlook, while the WASDE Report will shine more light on the soft commodity situation. At 13:00 Eastern the results of a 10Y auction will get released.
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