Home › Market News › CPI, EARNINGS, AND TRADER AWARENESS IN 2024
The Economic Calendar:
MONDAY: Used Car Prices (8:00a CST), Consumer Inflation Expectations (10:00a CST), Rafael Bostic Speaks (11:30a CST), Consumer Credit (2:00p CST)
TUESDAY: NFIB Business Optimism Index (5:00a CST), Balance of Trade (7:30a CST), Redbook (7:55a CST)
WEDNESDAY: MBA Morgage Applications (6:00a CST), Wholesale Inventories (9:00a CST), EIA Petroleum Status Report (9:30a CST), 10-Year Note Auction (12:00p CST), John Williams Speaks (2:15p CST)
THURSDAY: Jobless Claims (7:30a CST), CPI (7:30a CST), EIA Natural Gas Report (9:30a CST), 30-Year Bond Auction (12:00p CST)
FRIDAY: PPI (7:30a CST), Neel Kashkari Speaks (9:00a CST), Baker Hughes Rig Count (12:00p CST)
Key Events:
The most important data released this week is the U.S. CPI for December.
Monthly core inflation was 0.3% in November, which is also what expectations are showing for this release, which is still a bit on the high side for the Fed.
What do the seasonals look like for January? Looking at the last 25 years, the SPX has been positive 12 times with an average positive return of +3.86% and an average negative return of -3.74%. The overall average return is -29 basis points over this period.
On the downside, we’d need to push through the 4700 level in the S&P 500 futures, which requires a 4650 break to get Dealer “Short Option Gamma” aligning with CTA trigger selling flows.
WHAT COULD LEAD TO OUTPERFORMANCE?
Above-trend GDP growth continued positive EPS growth, rate cuts delivered while economic growth remains robust, and lower real yields.
WHAT COULD LEAD TO UNDERPERFORMANCE?
Spike in inflation (with consumer-led being more problematic than commodity/oil-led), Fed failure to make rate cuts, surge in Treasury yields or USD, geopolitical actions that increase U.S. military activity.
The bar ahead of 4Q results is higher than in recent quarters, but we expect S&P 500 firms will beat analyst forecasts in aggregate.
4Q 2023 earnings season will kick off this week with large-cap Financials. BAC, BK, BLK, C, JPM, and WFC will report on Friday.
74% of the S&P 500 market cap will have released results by February 9th.
Consensus forecasts S&P 500 4Q profits will rise by 3% year/year, driven by 3% sales growth and 14 basis points of margin contraction to 10.7%.
The Christmas rally we saw in treasury futures is starting to unwind now.
From the Goldman trading desk “flows” perspective:
What is genuinely WILD within this nascent Bond wobble to start the year ‘24 after that wild buy-to-cover squeeze/flip “Long” in late 4Q23…is that we now see CTA Trend strategies reversing much of that prior “Short Cover.”
Did the market misread Chair Powell’s message? The market started the year by changing the latest trend in treasury futures prices.
A total of 3 Fed officials have walked back Powell’s comments in the past two weeks – Williams, Goolsbee & Bostic.
The recent FOMC pushed back against expectations of rapid easing by obliquely referring to rate cut discussions.
We made bets that the Fed is not pivoting, but we took a little heat on the trade for a while. You have to respect market interpretation while simultaneously holding your view and playing out how these interact in price & time.
Goldman’s commodities strategists recently lowered their year-end 2024 Brent crude oil forecast to $80/bbl (from $94/bbl) partly due to greater U.S. supply growth.
The energy sector now contributes to 9% of S&P 500 net income. However, a decline in Brent crude is a downside risk for aggregate S&P 500 EPS.
Traders were looking for a 10-bagger in 0DTE’s on Ten-Year Note options last Friday.
Friday Week One 10-year January Treasury options were the structure of choice for the trade.
Many traders and money managers use 0DTE to hedge positions over risk events such as Fed policy meetings or job reports.
The buying seen Thursday was notably aggressive, with a position building of around 20,000 options for a premium of roughly $625,000.
IF the 10-year yield ended Friday at 4.20% — approximately 20 basis points higher than current market levels — the profit on the trade could have reached about $10 million.
The trade did not work as planned, but the asymmetric risk makes it an exciting bet.
The 3 most costly errors traders can make…
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