SPX Gamma Wrap
For the fourth day in a row, the SPX was not able to escape the gravity of the gamma strike at 4400 and closed 1.2 percent lower, mainly driven by the growth complex (-2.1%)
The decline of tech stocks was caused by erratic movements at the long end of the curve (10Y), where yields exploded 14 basis points higher, and killed the only two days old “inflation is peaking” narrative.
Investors are well advised to take a look at bond market volatility (chart below): Even though the Fed’s balance sheet is still growing by almost 40 billion dollar per month, the implied volatility of bond market options is moving structurally higher without mean reverting. Beware, especially if you are short rates (via tech for example).
Regarding today's economic data I want to focus on the preliminary University of Michigan Index for April, which unexpectedly jumped to 65.7 points (consensus 58.8) from 59.4 in March.
The key takeaway from the report is that the improvement was driven almost entirely by the Expectations Index, which moved up on improved wage expectations and a belief that gas price increases will moderate substantially in the year ahead.
While this data point is certainly very welcome, given the dramatic deterioration in consumer sentiment over the last months, I want to point out that the assumption that both expectations can be met at the same time is a little bit paradoxical..
Dealer gamma decreased by 142MM to minus 552MM meanwhile, which points to elevated volatility in the coming days.
The decline of tech stocks was caused by erratic movements at the long end of the curve (10Y), where yields exploded 14 basis points higher, and killed the only two days old “inflation is peaking” narrative.
Investors are well advised to take a look at bond market volatility (chart below): Even though the Fed’s balance sheet is still growing by almost 40 billion dollar per month, the implied volatility of bond market options is moving structurally higher without mean reverting. Beware, especially if you are short rates (via tech for example).
Regarding today's economic data I want to focus on the preliminary University of Michigan Index for April, which unexpectedly jumped to 65.7 points (consensus 58.8) from 59.4 in March.
The key takeaway from the report is that the improvement was driven almost entirely by the Expectations Index, which moved up on improved wage expectations and a belief that gas price increases will moderate substantially in the year ahead.
While this data point is certainly very welcome, given the dramatic deterioration in consumer sentiment over the last months, I want to point out that the assumption that both expectations can be met at the same time is a little bit paradoxical..
Dealer gamma decreased by 142MM to minus 552MM meanwhile, which points to elevated volatility in the coming days.
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