SPX Gamma Update
Global growth concerns are accelerating
The SPX closed 0.9% lower on global growth concerns due to preliminary PMI data from Japan, Australia, France, and Germany that all showed weaker-than-expected results for July and a US Service PMI that dropped to 47.0 from 52.7 previously.
Some color on the US purchasing manager report from S&P Chief Business Economist Chris Williamson:
"Excluding pandemic lockdown months, output is falling at a rate not seen since 2009.. with the survey data indicative of GDP falling at an annualised rate of approximately 1%. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook."
Compounding those concerns was the earnings report from Snap (-39%), which led to a sell-off of other companies that benefit from online advertising, including The Trade Desk (-7.3%), Alphabet (-5.8%) and Meta Platforms (-7.6%).
Fed Funds Futures exploded higher once again, signalling a significantly more dovish Fed.
Gamma Discussion
The market was not able to break through the big gamma barrier at 4000/4005 (combined gamma notional 50M+) and dropped into negative gamma land again with dealer net gamma now standing at -116M.
From a gamma perspective we can identify minor support at 3900/3910, but the real downside target is located at 3800 (-38M gamma notional).
In general market participants seem to be rather underhedged as several indicators like VVIX, SKEW etc are suggesting (which in itself is an argument for more downside), and the big question for next week will be if markets will finally start to capitulate (according to sevel metrics they have not), or if we will get a squeeze higher when systematic funds like CTAs or vol-control universe is forced to flip to long.
The SPX closed 0.9% lower on global growth concerns due to preliminary PMI data from Japan, Australia, France, and Germany that all showed weaker-than-expected results for July and a US Service PMI that dropped to 47.0 from 52.7 previously.
Some color on the US purchasing manager report from S&P Chief Business Economist Chris Williamson:
"Excluding pandemic lockdown months, output is falling at a rate not seen since 2009.. with the survey data indicative of GDP falling at an annualised rate of approximately 1%. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook."
Compounding those concerns was the earnings report from Snap (-39%), which led to a sell-off of other companies that benefit from online advertising, including The Trade Desk (-7.3%), Alphabet (-5.8%) and Meta Platforms (-7.6%).
Fed Funds Futures exploded higher once again, signalling a significantly more dovish Fed.
Gamma Discussion
The market was not able to break through the big gamma barrier at 4000/4005 (combined gamma notional 50M+) and dropped into negative gamma land again with dealer net gamma now standing at -116M.
From a gamma perspective we can identify minor support at 3900/3910, but the real downside target is located at 3800 (-38M gamma notional).
In general market participants seem to be rather underhedged as several indicators like VVIX, SKEW etc are suggesting (which in itself is an argument for more downside), and the big question for next week will be if markets will finally start to capitulate (according to sevel metrics they have not), or if we will get a squeeze higher when systematic funds like CTAs or vol-control universe is forced to flip to long.
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