Shorts-cover rally ends, SPX pinned above 4500
US stock market opens Thursday session in a not-so-pleasant mood as economic indicators only meet expectations. Cash flow continues to weaken from yesterday to this morning with SPX/SPY continuing to be pinned right above the gamma flip point 4500/450, moved up from previous 4400/440. Here, two-sided gamma pressure helps suppress volatility but also creates a magnetic pull preventing the index from moving too far up.
With volatility decreasing significantly in the last 3 trading sessions as most macro data released better or in line with forecasts, investors are shifting to hedge and de-risk for tomorrow's jobs report as well as the upcoming long weekend when market closes on Monday.
Overall, market strength has decreased with no organic buyers appearing to support cash flow after the recent volatility-sparked shorts-cover rally. However, call buyers are extremely active in a few familiar names, especially NVDA with enormous 500 Call positions, creating important gamma resistance for NVDA.
Amazon also a name of interest this morning after jobs report with this week's 140C the target investors are aiming for.
However, demand gradually fades and stops as AMZN advances to touch the important call wall resistance level at 140.
Initial jobless claims decrease - lowest in past 4 weeks
Initial jobless claims last week fell to 228,000 (vs 232,000 previous week), lowest in past 4 weeks.
Continuing jobless claims rose above 1.725 million last week.
JOLTS and ADP jobs reports over the past 2 days show labor market cooling, initial jobless claims expected to rise further ahead.
PCE inflation index rises slightly in July
Fed's favorite core PCE inflation rose 4.2% YoY in July (higher than June's 4.1%). Headline annual PCE rose 3.3%, largest increase after sharp decline since June/2022.
PCE services ex-housing index remains high.
Services index rose strongly in July however goods index declining deepest since 2022.
Personal income growth slows for 2 consecutive months, contrasting with continued spending increase.
Specifically, amid inflation, personal spending higher in July (up 3.0% YoY)
But real after-inflation income fell 0.2% MoM - largest drop since June 2022.
This means savings rate fell to 3.5% - lowest since Oct 2022, as consumers face credit card debt default risk. Savings expected to decline further ahead, especially with student loan debt resuming.
Salesforce Q2 report beats expectations, stock up 6.2%
RPO up 12% YoY to 24.1 billion USD.
Revenue at 8.6 billion USD, up 11% YoY ($70M beat).
Non-GAAP EPS at 2.12 USD ($0.24 beat).
2024 revenue expected up 11% YoY to 34.75 billion USD.
Stagflation endangers recovery in Eurozone
Contrary to US economy where inflation showing signs of cooling, Eurozone PMI indicates inflation still quite strong. CPI increase above 5% also much higher than ECB's 2% target.
Stoxx 600 underperforms S&P 500 for 4 straight months, erasing YTD lead.
German CPI rose 6.4% in August YoY, beating 6.3% estimate. While Spanish inflation fell much more to 2.4%, this is the 2nd month CPI accelerated, and core inflation remains high.
With persistent inflation, Europe likely to continue raising rates.
Some other news:
Bank of England faces massive bond loss of about 150 billion GBP (189 billion USD).
Apple reportedly testing 3D printing tech to make frame for upcoming Apple Watch Series 9.
Valuation of China's largest bank ICBC falls near record low (P/B at 0.38).
Swiss UBS reports Q2 profit of 28.88 billion USD after completing Credit Suisse takeover.
China housing price collapse from new and unfinished homes market has spread to existing occupancy market (market usually rises steadily and less speculative). Country Garden requests deferral of 3.9 billion RMB bond interest payment.
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