The SPX traded in a fairly narrow range today as market participants are awaiting the July jobs report tomorrow, and closed almost unchanged close to the gamma pin at 4150.
The BoE raised its key policy rate by 50 basis points to 1.75% and is now the first major central bank forecasting a recession starting in the fourth quarter and continuing for five quarters.
Oil prices were starting to rollover on concerns of demand slowdown and WTI settled at the lowest level since early February, while the 2s10s spread remained deeply inverted at -36 basis points (see chart below).
On retail flows: Recently we noted that VandaTrack is monitoring a surge of retail flows entering the market, and today Goldman was providing a 30.000 foot view of the situation.
According to the firm, retail investors have been on a de-risking trajectory since the first quarter (chart not included).
Goldman in its own words (emphasis ours): “Our internal estimates show a material slowdown in net buying of S&P 500 stocks from retail investors, who have likely turned increasingly pessimistic alongside the sharp sell-off of stocks generally favored by retail investors.
Although the last leg of the current rally has coincided with a hiatus in selling retail, we think the combination of an inflationary environment eroding households purchasing power – real disposable income has fallen sharply in the US – and savings rates being back to pre-pandemic levels can put further pressures on retail investors flows.
This is particularly relevant as households – alongside corporates – have been one of the largest sources of US equity demand in the post-pandemic cycle.”
So while there might indeed be something like a “retail revival” in the short term we would recommend to stay cautious, as this cohort is rather fragile considering their current financial condition.
For a sustainable rally we want to see systematic strategies like CTAs and vol control, etc. entering the market.
Gamma situation: Tomorrow about 30% of total net gamma will expire, mainly at our pin at 4150 and 4200.
In absolute terms those flows are rater limited (79M) and likely will not move the needle, but the minor tailwind could tilt the market in a favorable direction if NFP plays along well.
4200 is a strong resistance level however, and we doubt, that investors would add on too much risk ahead of the weekend with rockets flying across the Taiwan Strait.
The BoE raised its key policy rate by 50 basis points to 1.75% and is now the first major central bank forecasting a recession starting in the fourth quarter and continuing for five quarters.
Oil prices were starting to rollover on concerns of demand slowdown and WTI settled at the lowest level since early February, while the 2s10s spread remained deeply inverted at -36 basis points (see chart below).
On retail flows: Recently we noted that VandaTrack is monitoring a surge of retail flows entering the market, and today Goldman was providing a 30.000 foot view of the situation.
According to the firm, retail investors have been on a de-risking trajectory since the first quarter (chart not included).
Goldman in its own words (emphasis ours): “Our internal estimates show a material slowdown in net buying of S&P 500 stocks from retail investors, who have likely turned increasingly pessimistic alongside the sharp sell-off of stocks generally favored by retail investors.
Although the last leg of the current rally has coincided with a hiatus in selling retail, we think the combination of an inflationary environment eroding households purchasing power – real disposable income has fallen sharply in the US – and savings rates being back to pre-pandemic levels can put further pressures on retail investors flows.
This is particularly relevant as households – alongside corporates – have been one of the largest sources of US equity demand in the post-pandemic cycle.”
So while there might indeed be something like a “retail revival” in the short term we would recommend to stay cautious, as this cohort is rather fragile considering their current financial condition.
For a sustainable rally we want to see systematic strategies like CTAs and vol control, etc. entering the market.
Gamma situation: Tomorrow about 30% of total net gamma will expire, mainly at our pin at 4150 and 4200.
In absolute terms those flows are rater limited (79M) and likely will not move the needle, but the minor tailwind could tilt the market in a favorable direction if NFP plays along well.
4200 is a strong resistance level however, and we doubt, that investors would add on too much risk ahead of the weekend with rockets flying across the Taiwan Strait.