The SPX closed down 0.3 percent, but was able to defend the support level at 3900.
The index was pressured by mega caps, which took a breather after last week’s eight percent rally and closed down about one percent as expressed by the Vanguard Mega Cap Growth ETF.
Yields continued to drift higher (10Y + 7.1 bps, 02Y +6.6 bps), boosted by crude oil (+2.2%) and natural gas (+3.3%).
According to several media outlets G7 leaders are looking to put a price cap on Russian oil, but it is not clear how such a measure could be implemented, and what impact it would have on prices as some energy managers fear this could send oil substantially higher if Russia replies with counter-measures.
Speaking of..the US claimed on Monday that Russia defaulted on its foreign debt for the first time since 1918, but Russia rejects that view and accuses Euroclear to hold back money it already has received.
S&P was issuing a forecast according to which the economic momentum will likely protect the US economy from recession in 2022. But, with supply-chain disruptions worsening as the weight of extremely high prices damage purchasing power and aggressive Federal Reserve policy increases borrowing costs, the agency says it's hard to see the economy walking out of 2023 unscathed. The baseline scenario for 2023 is now a “low-growth” recession, but the chances of a contraction are rising, according to S&P.
While the chances for a downturn are rising, chances for a more dovish Fed are declining again, after it becomes clearer, that a) the European energy war has not reached its climax yet and b) SU energy scarcity might persist even in a recessionary environment. As Piper Sandler explained:
“Macro view suggests a high chance of recession in early 2023, and the historical playbook would tell you to stay away from refiners in a recession, we see the dynamics as unique today, with margin strength driven by supply constraints, rather than demand strength. Given system tightness, even in a severe recession (2.0 Mb/d+ of demand destruction), global utilization rates would merely approach pre-Covid mid-cycle levels.”
The chart above depicts the Federal Funds Future December contract according to which the "peak inflation" narrative has run its course.
Tomorrow investors will receive the June Consumer Confidence report, which will be released at 10:00 AM, and will certainly be watched very closely after the June Consumer Sentiment Index (Friday) was the lowest result on record.
Gamma Discussion
From a gamma perspective 3900 remains supportive, while 4000 is the next logical upside target (call and put gamma at 3950 cancel each other out).
Above 4055 dealer gamma would turn positive and change hedging requirements:
While market makers are currently adjusting their delta-hedges cyclically by selling into weakness and buying into strength, they would be forced to sell into strength and buy weakness at levels above 4055.
This would add liquidity, dampen volatility and adding confidence to the market.
Please consult the chart below to get an idea how changes in the dealer gamma position affect volatility.
https://bucket.mlcdn.com/a/3517/3517811/images/4ada3e4bdc418e79c7572ac1c4b27a96b865777e.png
The index was pressured by mega caps, which took a breather after last week’s eight percent rally and closed down about one percent as expressed by the Vanguard Mega Cap Growth ETF.
Yields continued to drift higher (10Y + 7.1 bps, 02Y +6.6 bps), boosted by crude oil (+2.2%) and natural gas (+3.3%).
According to several media outlets G7 leaders are looking to put a price cap on Russian oil, but it is not clear how such a measure could be implemented, and what impact it would have on prices as some energy managers fear this could send oil substantially higher if Russia replies with counter-measures.
Speaking of..the US claimed on Monday that Russia defaulted on its foreign debt for the first time since 1918, but Russia rejects that view and accuses Euroclear to hold back money it already has received.
S&P was issuing a forecast according to which the economic momentum will likely protect the US economy from recession in 2022. But, with supply-chain disruptions worsening as the weight of extremely high prices damage purchasing power and aggressive Federal Reserve policy increases borrowing costs, the agency says it's hard to see the economy walking out of 2023 unscathed. The baseline scenario for 2023 is now a “low-growth” recession, but the chances of a contraction are rising, according to S&P.
While the chances for a downturn are rising, chances for a more dovish Fed are declining again, after it becomes clearer, that a) the European energy war has not reached its climax yet and b) SU energy scarcity might persist even in a recessionary environment. As Piper Sandler explained:
“Macro view suggests a high chance of recession in early 2023, and the historical playbook would tell you to stay away from refiners in a recession, we see the dynamics as unique today, with margin strength driven by supply constraints, rather than demand strength. Given system tightness, even in a severe recession (2.0 Mb/d+ of demand destruction), global utilization rates would merely approach pre-Covid mid-cycle levels.”
The chart above depicts the Federal Funds Future December contract according to which the "peak inflation" narrative has run its course.
Tomorrow investors will receive the June Consumer Confidence report, which will be released at 10:00 AM, and will certainly be watched very closely after the June Consumer Sentiment Index (Friday) was the lowest result on record.
Gamma Discussion
From a gamma perspective 3900 remains supportive, while 4000 is the next logical upside target (call and put gamma at 3950 cancel each other out).
Above 4055 dealer gamma would turn positive and change hedging requirements:
While market makers are currently adjusting their delta-hedges cyclically by selling into weakness and buying into strength, they would be forced to sell into strength and buy weakness at levels above 4055.
This would add liquidity, dampen volatility and adding confidence to the market.
Please consult the chart below to get an idea how changes in the dealer gamma position affect volatility.
https://bucket.mlcdn.com/a/3517/3517811/images/4ada3e4bdc418e79c7572ac1c4b27a96b865777e.png