The SPX overcame its initial weakness and closed about one percent higher on Tuesday, aided by a 2.4 point drop of the VIX.
The sentiment also received a boost from a decline in Treasury yields at the long end of the curve even though bills at the short end came under pressure after a weak debt auction, which luckily had no impact on stocks.
Today's best-performing sector was the energy complex (+3.1%), which was driven by a 1.2 percent gain in crude futures to almost 120 dollar per barrel and a big move by Exxon Mobil (+4.6%), which was upgraded by Evercore ISI.
According to Trafigura CEA Jeremy Weir oil prices could reach a “parabolic state” and endanger global growth by climbing to 150 dollar per barrel in the coming months, which would eventually result in demand destruction.
Despite the bleak prospects US consumers are maxing out their credit cards, as the dramatic increase in credit card debt of 17.8 billion (2nd highest on record) underscores.
The Atlanta Fed meanwhile cut the second quarter estimate based on its GDPNow tracker from 1.3 to 0.9 percent, which is significantly lower than the median Blue Chip consensus of almost three percent.
Gamma Discussion
Implied SPX dealer gamma improved to -223MM as dealers were buying back futures in order to keep their portfolios properly delta-hedged.
There is of course always the old question of what came first - chicken or egg / stocks or implied volatility, but we think that the significant compression of the VIX was a large driver for today’s reflexive move in the underlying, as it forced option dealers to trade with the market and chase prices higher.
According to Nomura’s McElligott, volatility seems “cheap” here, especially into a "massive binary CPI/FOMC/VIXpery and OPEX 1 week window”.
We agree with the Nomura quant as our proprietary model (which will be included into the Dashboard in a bit), also shows that the VIX is trading over two points under it’s “fair value” on a 5-day rolling basis.
That is much better than early/mid May, when the VIX was almost eight points “too cheap”, but given the big events coming up there could be plenty of upside for volatility.
Looking ahead
Tomorrow investors will receive the Eurozone GDP print and crude inventories, Thursday the ECB will reveal its policy decision and on Friday CPI inflation data will be released in the US, so there will be much room for market moving impulses.
The sentiment also received a boost from a decline in Treasury yields at the long end of the curve even though bills at the short end came under pressure after a weak debt auction, which luckily had no impact on stocks.
Today's best-performing sector was the energy complex (+3.1%), which was driven by a 1.2 percent gain in crude futures to almost 120 dollar per barrel and a big move by Exxon Mobil (+4.6%), which was upgraded by Evercore ISI.
According to Trafigura CEA Jeremy Weir oil prices could reach a “parabolic state” and endanger global growth by climbing to 150 dollar per barrel in the coming months, which would eventually result in demand destruction.
Despite the bleak prospects US consumers are maxing out their credit cards, as the dramatic increase in credit card debt of 17.8 billion (2nd highest on record) underscores.
The Atlanta Fed meanwhile cut the second quarter estimate based on its GDPNow tracker from 1.3 to 0.9 percent, which is significantly lower than the median Blue Chip consensus of almost three percent.
Gamma Discussion
Implied SPX dealer gamma improved to -223MM as dealers were buying back futures in order to keep their portfolios properly delta-hedged.
There is of course always the old question of what came first - chicken or egg / stocks or implied volatility, but we think that the significant compression of the VIX was a large driver for today’s reflexive move in the underlying, as it forced option dealers to trade with the market and chase prices higher.
According to Nomura’s McElligott, volatility seems “cheap” here, especially into a "massive binary CPI/FOMC/VIXpery and OPEX 1 week window”.
We agree with the Nomura quant as our proprietary model (which will be included into the Dashboard in a bit), also shows that the VIX is trading over two points under it’s “fair value” on a 5-day rolling basis.
That is much better than early/mid May, when the VIX was almost eight points “too cheap”, but given the big events coming up there could be plenty of upside for volatility.
Looking ahead
Tomorrow investors will receive the Eurozone GDP print and crude inventories, Thursday the ECB will reveal its policy decision and on Friday CPI inflation data will be released in the US, so there will be much room for market moving impulses.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.