The main theme today will be the prospects of a recession:
Goldman CEO Blankfein (answering a question if the US is heading towards recession): We're certainly heading - it's certainly a very, very high risk factor. And there's - but, you know, there's a path. It's a narrow path. But I think the Fed has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it. But I think they are - I think they're responding well. I think it's definitely a risk. If I were running a big company, I would be very prepared for it.If I was a consumer, I'd be prepared for it.
Also not helping are weak economic figures out of China for April, reflecting the impact of coronavirus restrictions (industrial production -2.9%, retail sales -11.1%, property investments -2.7%), while the EU Commission's lowered the spring forecast to 2.7 percent from 4.0 percent and raised the inflation forecast to 6.1 percent from 3.5 percent.
Over in the US the Empire State Manufacturing Index missed expectations and crashed to -11 points after 24.6 previously.
In terms of geopolitics a Nato membership of Finnland and Sweden would be a major game changer. However, this will filter through only slowly most likely.
Gamma situation:
From an options standpoint 4000 remain pivotal, while 3950/3900 provide support and 4100 is a prominent target. Dealer gamma improved to -907MM, but is still at extremely low levels, which suggests further volatility and market fragility ahead.
Main event this week will be OPEX on Friday, which will bring an expiration of over 20 percent of implied dealer gamma (about -215MM).
Should the market manage to stay above 4000 then there is certainly the possibility of option dealers adding to that support by further closing out hedging positions due to a decline in value of large amounts of puts around this strike, which could amplify a rally into Friday.
However, given the highly/or increasingly uncertain macro environment, a lax pin at 4000 is more prefered, before OPEX will open the door for more directionality.
Your macro analysis always seems on point. I would add the number one thing for investors to be thinking about heading into the 12-24 months is what market changes are going to occur as a result of a drastic cut in household discretionary spending money. I think the US can weather a recession and the fed could navigate it properly so its not the "end of days" as so many in the uneducated masses call for constantly. However, there's no question about it. Discretionary consumer spending money is going down.
Btw, a mere lack of growth on the back of multiple double digit years of market growth is a recession. lol. I mean 29% in 2019 16% in 2020. 27% in 2021... holy crap. a 10% growth year is a recession (at least a market recession)
But why I really commented. You said... " If I was a consumer, I'd be prepared for it." But, if you're not a consumer... what are you? (o.o) Are you a robot?
GammaLab
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@kurtsmock, Hi thanks for the comment, I appreciate it, but it isn't me who is warning of a recession, it is Lloyd Blankfein (I forgot the quotation marks). Yes agree, discretionary spending will take a big hit.
kurtsmock
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@GammaLab, Fair. ...but I still suspect robot is a possibility. =)
Btw, a mere lack of growth on the back of multiple double digit years of market growth is a recession. lol. I mean 29% in 2019 16% in 2020. 27% in 2021... holy crap. a 10% growth year is a recession (at least a market recession)
But why I really commented. You said... " If I was a consumer, I'd be prepared for it." But, if you're not a consumer... what are you? (o.o) Are you a robot?