SPX Gamma Update
The awaited post-OPEX squeeze is here. I copy and past from the NL. Biggest unreported story: USD/JPY - I recommend to take a look at that chart.
The S&P 500 future is trading 1.4 percent above fair value.
Market participants appear to be looking through a whole bunch of negative headline developments, like new reports of an increase in Covid cases in Shenzhen and Macau, increased calls pointing to higher probabilities for a recession in the US (as mentioned in yesterday’s newsletter), and a number of headlines pinpointing the specter of more rate hikes on the way from many of the world's leading central banks, a dire energy situation in Europe and increased geopolitical risk regarding Kaliningrad.
The question is now, if we could we get the awaited post-OPEX squeeze. According to Goldman hedge fund selling has exploded on Friday and Monday to levels never recorded before and even higher than in the aftermath of Lehman Brothers and shorting activity was the “second largest ever on our record (second only to the week ending June 12, 2008)", according to the bank.
Goldman is basically confirming what our option data is showing us as well and we want to point out that the SPX is currently trading about 10 percent below the “gamma flip level” where the market is balanced, which is rather unprecedented (see chart below).
Meanwhile, the 2-yr note yield is up four basis points to 3.22% and the 10-yr note yield is up five basis points to 3.29%, while Fed Funds Futures are only little changed (see chart below).
Markets in the Asia-Pacific region ended Tuesday’s session mostly higher with the Nikkei gaining 1.8 percent, the Hang Seng 1.9 percent, SOuth Korea’s Kospi 0.8 percent and Australia’s ASX 1.4 percent.
Exports in South Korea were down 3.4 percent through the first 20 days of June while chip exports were up 1.9 percent .
Japan's Finance Minister Suzuki said that current inflation is due to higher commodity prices and that Japan's fiscal health has not worsened.
The Reserve Bank of Australia's latest policy minutes showed that the central bank is considering either a 25- or a 50-bps rate hike in July and an agreement that inflation will not return to target if current policy is maintained.
Economic data Asia
1) Hong Kong's May CPI 1.2% yr/yr (expected 1.9%; last 1.3%)
In Europe major indices trade on a firmly higher note and the EUro Stoxx is up 0.8 percent currently.
A new theme that is emerging is that workers are no longer willing to accept high inflation:
Unionized railroad workers in the UK have begun their largest strike in 30 years, while in Germany the largest metalworkers' union is calling for an 8 percent increase in wages.
European Central Bank President Lagarde repeated intentions to raise rates by 25 bps in July and September while Chief Economist Lane said that the size of the September increase remains undecided.
Russia is demanding that Lithuania lift its blockade of the Kaliningrad Oblast. This is a serious issue that demands monitoring, as a blockade is a serious step higher in the escalation ladder and could lead to an unpleasant response from Russia.
Economic data Europe
1) Eurozone's April Current Account deficit 5.80 bln Euro (last deficit of 1.60 bln)
2) UK June CBI Industrial Trends Orders 18 (expected 22, last 26)
3) Swiss May trade surplus 2.00 bln (last surplus of 3.60 bln)
The S&P 500 future is trading 1.4 percent above fair value.
Market participants appear to be looking through a whole bunch of negative headline developments, like new reports of an increase in Covid cases in Shenzhen and Macau, increased calls pointing to higher probabilities for a recession in the US (as mentioned in yesterday’s newsletter), and a number of headlines pinpointing the specter of more rate hikes on the way from many of the world's leading central banks, a dire energy situation in Europe and increased geopolitical risk regarding Kaliningrad.
The question is now, if we could we get the awaited post-OPEX squeeze. According to Goldman hedge fund selling has exploded on Friday and Monday to levels never recorded before and even higher than in the aftermath of Lehman Brothers and shorting activity was the “second largest ever on our record (second only to the week ending June 12, 2008)", according to the bank.
Goldman is basically confirming what our option data is showing us as well and we want to point out that the SPX is currently trading about 10 percent below the “gamma flip level” where the market is balanced, which is rather unprecedented (see chart below).
Meanwhile, the 2-yr note yield is up four basis points to 3.22% and the 10-yr note yield is up five basis points to 3.29%, while Fed Funds Futures are only little changed (see chart below).
Markets in the Asia-Pacific region ended Tuesday’s session mostly higher with the Nikkei gaining 1.8 percent, the Hang Seng 1.9 percent, SOuth Korea’s Kospi 0.8 percent and Australia’s ASX 1.4 percent.
Exports in South Korea were down 3.4 percent through the first 20 days of June while chip exports were up 1.9 percent .
Japan's Finance Minister Suzuki said that current inflation is due to higher commodity prices and that Japan's fiscal health has not worsened.
The Reserve Bank of Australia's latest policy minutes showed that the central bank is considering either a 25- or a 50-bps rate hike in July and an agreement that inflation will not return to target if current policy is maintained.
Economic data Asia
1) Hong Kong's May CPI 1.2% yr/yr (expected 1.9%; last 1.3%)
In Europe major indices trade on a firmly higher note and the EUro Stoxx is up 0.8 percent currently.
A new theme that is emerging is that workers are no longer willing to accept high inflation:
Unionized railroad workers in the UK have begun their largest strike in 30 years, while in Germany the largest metalworkers' union is calling for an 8 percent increase in wages.
European Central Bank President Lagarde repeated intentions to raise rates by 25 bps in July and September while Chief Economist Lane said that the size of the September increase remains undecided.
Russia is demanding that Lithuania lift its blockade of the Kaliningrad Oblast. This is a serious issue that demands monitoring, as a blockade is a serious step higher in the escalation ladder and could lead to an unpleasant response from Russia.
Economic data Europe
1) Eurozone's April Current Account deficit 5.80 bln Euro (last deficit of 1.60 bln)
2) UK June CBI Industrial Trends Orders 18 (expected 22, last 26)
3) Swiss May trade surplus 2.00 bln (last surplus of 3.60 bln)
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