Rally ends, SPY tries to find bottom at 420
US stock market returns to bearish state after buyers completely absent throughout the morning. Yesterday's rally appears short-lived as last week's unemployment claims report shows no change with bonds yield surging early morning with 10Y touching near 4.78% before starting to retreat later. Market also notes large TLT put volume yesterday while bonds rally.
Although it reversed, the early morning bond market pressure was enough to scare investors. Entire NASDAQ and S&P500 indices start red from early morning with buyers losing important gamma level at 4250 pulling volatility up during the day. Most of the morning selling pressure concentrated in commodities and retail sectors
After 1 hour of selling, SPX finds bottom at put wall 4200, with yield continuing to pull back in the morning. Early morning and yesterday afternoon put hedge buying starts to decay strongly and buyers forced to cover, pulling put/call volume ratio diving back below 1.0 with buy/sell volume differential on both NASDAQ and NYSE returning to normal.
Overall, market is set up for a short-cover rally up to SPX~4300 from a positioning perspective with huge short-term put volume at SPX~4200. Currently VIX also pinned below call wall 20 reducing some impact of put volume and creating fuel for market rally as put volume starts to decay at SPX~4200 or buyers accept rolling off hedge to next week.
Unemployment claims remain low
After job openings report and ADP labor report reflect two completely different pictures of September labor market, investors disappointed as this morning's unemployment claims index does not confirm economy weakening.
Initial claims for unemployment benefits rose slightly to 207,000 last week, lower than expected 210,000
Seasonally adjusted figure is 172,000 - lowest since October 2022
Unemployment claims remaining low is a move against yesterday's weak ADP data.
Continuing claims at 1.664 million, lowest so far this year.
Challenger layoff index drops sharply from August
Challenger-reported layoff data: businesses cut 47,457 jobs in September, down 37% from 75,151 cuts in August.
Technology sector continues to lead with nearly 152,000 jobs cut this year, up 716% from 18,620 reported same period last year.
High bond yields continue to stress financial markets
US Treasury bond values down -46% since peaking in March 2020.
Bond selloff wave causes bank unrealized losses to rise again. US banks currently hold 5.4 trillion USD in debt securities and lost 140 billion USD in the quarter.
Losses related to US Treasury bonds reached 1.619 trillion USD.
Corporate bond market records negative returns as government bond yields surge.
Rising yields weigh heavily on stock market.
Stock risk premium currently near 0, lowest in over 2 decades, implying stock investors not rewarded for taking any additional risk
Rising real yields make company valuations significantly lower and stocks less attractive.
US August trade deficit falls to near 3-year low
Goods and services trade deficit down 9.9% from previous month to 58.3 billion USD, lower than expected 62.3 billion USD. Imports down 0.7%, while exports up 1.6%.
This is the lowest deficit since the pandemic and this figure will directly reflect in Q3 GDP. Atlanta Fed's GDPNow forecasts Q3 GDP at 4.9%.
Oil prices continue to fall amid unclear demand outlook
Oil prices continue to fall amid unclear demand outlook and tightening supply.
OPEC+ makes no changes to oil production policy
Saudi Arabia says it will continue voluntary cut of 1 million barrels per day
Russia will maintain voluntary export restriction of 300,000 barrels/day until end of 2023.
Other news:
Rivian shares fall 9.2% as company announces plans to issue $1.5 billion in convertible bonds
Dell Technologies adds $5 billion to its share buyback program
Shares of UK's Metro Bank suspended from trading multiple times after falling 25% in value
Toyota, LG Energy Solution sign $3 billion battery supply contract in the US.
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