The SPX closed 1.7 percent lower below 3950 points, driven mainly by mega cap growth stocks (Apple -5.2%, Tesla -8,3%), while energy (+1.3% and utilities (+0.7%) were rock solid.
Two data points stand out today:
1) CPI increased faster than expected month over month even though the year-over-year numbers showed signs of slowing inflation (with a portion of goodwill).
2) Diesel stock at the east continued to fall to dramatically low levels, which will drive inflation higher as there is no way stocks can be refilled to adequate levels this year due to very limited refinery capacity and only so much available pipeline throughput.
Have the markets really factored in a inflation scenario that doesn’t get resolved near-term? What have the markets factored in at all?
According to a recent tweet from Mohamed El-Erian markets have only internalized in a significant way two (rates, liquidity) of the four major changes in the operating paradigm, while ignoring credit risk and market functioning.
El-Erian might be right, as neither the VIX (-0.4 to 32.6%) or other measures (e.g. Taildex -1.64 to 15.8%, see chart) really seem to price in a catastrophic scenario (so far).
Implied dealer gamma continues to erode and now registers at -1162MM, which continues to suggest high volatility ahead.
Put option activity was again high at low (3700), lower (3500) and ultra-low (3300) strikes which suggests that at least some bigger firms are loading up on sigma-x protection.
At the upside 4000 is the prime target level, to the downside 3900/3800 is looming large.
Two data points stand out today:
1) CPI increased faster than expected month over month even though the year-over-year numbers showed signs of slowing inflation (with a portion of goodwill).
2) Diesel stock at the east continued to fall to dramatically low levels, which will drive inflation higher as there is no way stocks can be refilled to adequate levels this year due to very limited refinery capacity and only so much available pipeline throughput.
Have the markets really factored in a inflation scenario that doesn’t get resolved near-term? What have the markets factored in at all?
According to a recent tweet from Mohamed El-Erian markets have only internalized in a significant way two (rates, liquidity) of the four major changes in the operating paradigm, while ignoring credit risk and market functioning.
El-Erian might be right, as neither the VIX (-0.4 to 32.6%) or other measures (e.g. Taildex -1.64 to 15.8%, see chart) really seem to price in a catastrophic scenario (so far).
Implied dealer gamma continues to erode and now registers at -1162MM, which continues to suggest high volatility ahead.
Put option activity was again high at low (3700), lower (3500) and ultra-low (3300) strikes which suggests that at least some bigger firms are loading up on sigma-x protection.
At the upside 4000 is the prime target level, to the downside 3900/3800 is looming large.