Market 11/02: Strong shorts-cover rally after FOMC

SPX back to 4300, put buyers forced to cover

Entering early week, TBAC Report shows US government will borrow less in Q4, helping stabilize bond market
Before day 4, SPY maintained between 2 gamma levels: 410 put wall and 420 gamma flip.
Entering day 4, TBAC report shows US government will borrow less than expected and rely more on long-term bonds helping stabilize bond market, pulling SPY above 420.
Most IV pulled out of market on day 3 as SPY short-sellers forced to derisk with large 410P and 400P positions.

Conditions for rally to continue tomorrow and next week similar to last week:
- SPY above 420 / SPX above 4300 market returns to positive gamma zone
- VIX < 20
- 10Y Yield < 5.00%
Note gamma zone at SPX~4300 with heavy concentration, most dealers will try to pin SPX here until end of tomorrow.

Orders post biggest gain since post-Covid

After unimpressive results in July and August, factory orders in September rose significantly to 2.8% (vs. expected 2.3%).

Excluding transportation, orders up only 0.8%, clearly showing transportation sector contributed strongly to overall growth.

Non-defense aircraft orders up 18.5% (while defense orders down 14.4% from previous month) → Defense spending did not contribute to this growth.

Aircraft engines and parts orders surge 62.3% from previous month. Of which orders:

Non-defense +92.5%.
For defense aircraft -15.2%.

Labor productivity strongest gain in 3 years, unit labor costs decline

Hourly productivity up 4.7% in Q3, helping mitigate inflation's impact on wage growth, showing companies boosting efficiency. However, unit labor costs fell for first time since late 2022.

Initial jobless claims highest in 6 months

After sudden drop in Ohio claims for a while, US initial claims rose to 2-month high of 217,000, above expected 210,000.

Sudden spike in initial Ohio claims completely removed. Claims from that state back near record lows.

Initial jobless claims continue rising though still low, while continuing claims surged well above expectations (to 1.8 million).

According to Goldman Sachs, seasonality increasingly impacting continuing claims over past 6 months, expected to add another 375,000 from now to March.

Summary of yesterday's Fed press conference (11/01/2023): Continue holding rates

Strong determination to achieve 2% inflation target.
Tightening effects not yet felt strongly.
Nominal wage growth showing signs of easing.
Labor market remains stronger than expected.
Fed to be cautious in upcoming policies.
Reducing inflation may require weaker labor market.

After Fed holds rates, S&P 500 up 1% in session and 130 points from week's low.

Atlanta Fed lowers Q4 GDP growth forecast to +1.2%

Previous quarter, BEA estimated Q3 GDP growth to 4.9% (much higher than expected) based on inventory buildup and government consumption.

However, Atlanta Fed forecasts Q4 2023 GDP growth at 1.2%, nearly 50% below estimates.

Paypal ER: Stock surges as crypto concerns ease

Total payment volume (TPV) up 15% to $387.7 billion.
Net revenue $7.4 billion, up 8%.
GAAP EPS $0.93.
Non-GAAP EPS $1.30.
Paypal leads in crypto usage. Positive guidance highlights strong consumer financial health.