Liquidity collapses, 72% of S&P500 declines
US stock market opens Thursday's trading session with focus on September CPI report. Before today, gamma flow has been mostly bullish with volatility sellers almost completely absent over the past 4 days. As noted in newsletter 10/05, most hedges have been shifted to the first week of November to cover FOMC, creating a "quiet" period in the market that allows capital flows to recover. SPX call wall has been pushed up to 4500 while volatility hits bottom around upper 4425.
However, what to note over the past 2 days is that liquidity in general continues to trend downward with most investors deciding to sit out of the market since yesterday.
With 72% of S&P 500 basket in red in the morning, most of the market is pulled by megacap tech block.
Overall, the market maintains a clear bullish state with next gamma level at 4400. Unlike previous days, SPX call wall has been pushed to 4500 so the area above 4400 is no longer considered "over-extended" for the index. However, with liquidity remaining low, SPX will mostly continue trading in the 4350-4400 range until end of day.
Headline CPI hotter than expected, Core CPI remains above 4%
September CPI up 0.4% MoM and 3.7% YoY. Both figures higher than economists' forecasts of 0.3% and 3.6% respectively. This is the third consecutive month YoY CPI has risen higher than the previous month.
Core CPI up 0.3% MoM and 4.1% YoY. Core CPI has remained above 4.00% since May 2021.
Core services CPI excluding housing - Fed's new favorite inflation gauge, up 3.74% YoY - lowest increase since December 2021.
Services are the largest contributor to YoY CPI increase. Contributions from food and goods have decreased significantly compared to previous periods.
Goods inflation unchanged YoY and services CPI down to +5.7%.
Gasoline prices continue to rise and used car prices fall.
Housing costs have slowed but continue to be the "culprit" making US CPI rise stronger than expected. Housing costs - accounting for 1/3 weight in CPI basket - up 0.6% MoM and 7.2% YoY.
Rent inflation up 7.41%, down from 7.76% in August and lowest since September 2022
Owners' equivalent rent inflation up 7.15%, down from 7.27% in August and lowest since November 2022
Although rent CPI is up over 7%, real-time rent indices are plunging. September rent from Apt List saw the sharpest drop in history.
Real wages down 0.1% YoY (after 3 consecutive months of gains).
Initial jobless claims continue to remain low
Last week's initial jobless claims remain low at 209,000. Unadjusted data at 175,000 - lowest since October 2022.
Continuing claims rose to over 1.7 million, specifically 1.702 million.
US dollar and Treasury yields rise after CPI data release
CPI report hotter than expected raised market concerns and pushed Treasury yields and US dollar higher. US dollar index DXY surged after the news.
Yields rise across maturities.
US crude inventories surge
EIA official weekly crude inventory data up 10.176 million barrels vs +492,000 expected - largest increase since 02/23.
Gasoline: -1.313 million vs -800,000 expected
Cushing: -319,000
Distillates: -1.837 million vs -802,000 expected
Refinery utilization: -1.6% vs -0.4% expected
API data released yesterday:
Crude: -12.940 million
Cushing: -547,000
Gasoline: +3.645 million
Distillates: -3.535 million
For the second time in three weeks, Biden administration has drained Strategic Petroleum Reserve SPR (only 6,000 barrels left)
Cushing stocks fall to 5-year low.
Other news:
International Energy Agency IEA raises this year's oil demand forecast to 2.3 million bpd from previous 2.2 million.
IEA also cuts 2024 demand growth to 880,000 bpd from previous 1 million bpd.
Israeli President: Israel prepares to launch large-scale military campaign against Hamas in Gaza Strip. President Herzog said this will be a long and protracted "battle" against Hamas.
Comments (0)
No comments yet
Be the first to comment
Login to comment