SPX Gamma Wrap
The SPX ended up one percent higher today, with growth mega-caps (MGK +1.8%) leading the way, while value (SPYV +0.8%) underperformed significantly.
Main factor behind the moves were further declining yields at the long end of the curve (10Y), which came back four basis points today, and compressed by ten basis points since yesterday.
While the “peak inflation” narrative, that the market is currently trying to establish, never made much sense considering the under-the-hood internals of yesterday’s CPI print, it seems even more odd in view of today’s ultra-hot PPI print:
The Producer Price Index jumped 1.4 percent month-over-month in March (consensus 1.2%), while the index less foods and energy rose 1.0 percent (consensus 0.5%). On a year-over-year basis, the PPI was up 11.2 percent while the core index was up 9.2 percent.
The key takeaway from the report is that either margin or inflation pressures are going to intensify down the road. Both options are a negative for stocks, as they result in the same outcome, less profit that is.
Another warning sign was the earnings report from JPMorgan:
While being in “bear mode”: The situation over in the Ukraine continues to escalate in a dangerous manner, as the transatlantic allies pledged once again to step up their military aid (heavy weapons no longer a taboo), and Russia warned that Nato-convoys are now becoming a legitimate target. What could go wrong?
Market structure:
Dealer gamma improved by 299MM to -410MM, while the gamma inversion level remains fixed at 4495 for now (tomorrow this level might shift when fresh open interest data gets released).
Main factor behind the moves were further declining yields at the long end of the curve (10Y), which came back four basis points today, and compressed by ten basis points since yesterday.
While the “peak inflation” narrative, that the market is currently trying to establish, never made much sense considering the under-the-hood internals of yesterday’s CPI print, it seems even more odd in view of today’s ultra-hot PPI print:
The Producer Price Index jumped 1.4 percent month-over-month in March (consensus 1.2%), while the index less foods and energy rose 1.0 percent (consensus 0.5%). On a year-over-year basis, the PPI was up 11.2 percent while the core index was up 9.2 percent.
The key takeaway from the report is that either margin or inflation pressures are going to intensify down the road. Both options are a negative for stocks, as they result in the same outcome, less profit that is.
Another warning sign was the earnings report from JPMorgan:
- Even though higher interest rates should be positive for banks in general, as they increase their basic borrowing/lending spread, they can hurt if they cause too much demand destruction, and this is exactly what seems to happen, as home loan and auto loan originations fell by 37 percent and 25 percent respectively year-over-year.
- JPM's reserve build (902MM) not only shaved off a substantial amount of profit this quarter, but it also reflects a cautious outlook for the overall economy. Recall how the market rejoiced, when the bank released over five billion of reserves, which was interpreted as a major vote of confidence in the economic recovery.
While being in “bear mode”: The situation over in the Ukraine continues to escalate in a dangerous manner, as the transatlantic allies pledged once again to step up their military aid (heavy weapons no longer a taboo), and Russia warned that Nato-convoys are now becoming a legitimate target. What could go wrong?
Market structure:
Dealer gamma improved by 299MM to -410MM, while the gamma inversion level remains fixed at 4495 for now (tomorrow this level might shift when fresh open interest data gets released).
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