Well, stocks were unpinned on Monday; there is no argument there. How much of this really had to do with tariffs and whatnot is another question. From listening to Trump speak multiple times yesterday, I didn’t get the sense that he was suddenly taking a lighter stance on tariffs, and I can’t wait until April 2 comes.
I think yesterday had much more to do with the release of the market from the options expiration date and the pinning effect placed all last week. Additionally, the negative gamma environment and a big Tesla (NASDAQ:TSLA) rally helped to push prices higher. At least, that is what it looked like.
Today is likely not to be a negative gamma day because, from what I could tell, yesterday’s zero gamma level was around 5,700. Additionally, the S&P 500 closed the drop gap opening on March 10. The RSP was up slightly more than 1%. So, there are plenty of reasons to see more muted and subdued price action.
Yesterday, volume on the S&P 500 futures also fell to around 1.33 million contracts, the lightest trading session since February 19.
The S&P Global PMI data for the US was interesting and worth the five-minute read. Inflation is back; that is clear. The report notes that inflation rose at the sharpest rate across goods and services in 23 months. Inflation swaps took note, with the 1- and 2-year inflation swaps both rising pretty sharply and now once again on the verge of breaking out. They both have some nice-looking bull flags forming in them.
Imagine what happens when oil, which doesn’t seem to want to go down, actually starts rising. Inflation expectations could really start moving to the upside.
Or even lumber. Lumber just made a new cycle closing high.
The 10-year rose by nine bps yesterday, following that inflationary PMI data. It closed above its 10-day exponential moving average. I guess we will see how Team Trump feels about the rise in the 10-year. I wouldn’t say the 10-year has broken out yet, but it’s close.
From a fundamental standpoint, one would think that if oil is going higher and inflation swaps are going higher, 10-year rates are going higher. On the other hand, we know that Trump wants rates lower. The question is who is going to win. I honestly do not know.