Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat ahead of PCE at 8:30AM EST. 10Y yields remain at highs: 5.24%.

MU earnings are after the close – see our writeup here.

It is quarter end, too, and so we watch for the potential of large unusual flows mixing in with rate-reactions.

Lastly – the JPM roll is on for today but we do not anticipate any major intraday reactions due to their new futures-related structure – a structure which has featured smaller contract sizes (now ~20k size per leg vs what was +40k).

The SPX continues to hover around the Risk Pivot, as the grind-down market continues. Gamma remains positive into the 7,700 area due to some large 0DTE strikes. This is initial resistance for today. Above that level is negative gamma, which implied a break-out on good news – we think that is unlikely for today given MU earnings and NFP upcoming.

To the downside we think there is a lack of support into 7,600, so hot data could lead to a swift move into that level.

If the SPX were to start truly breaking down, we watch for ~7,400 as a wash-out low based on current positioning. The concern is that bad data leads to put-hedging which would add to negative gamma below.

The volatility complex has really started to react to the rate risk. This is not only as seen in the MOVE index, but we now see that TLT has a put skew and an IV Rank near 100! HYG has also started to shift higher in IV. Conversely, the single stock complex has positioned heavily to call skews. Clearly the market is caring about the rate situation and the upcoming data in a way we’ve not recently seen. Our read here is that the market is poised for volatility – but we again note that today’s data is just the first in a series of key data. Given this, for today, we think the risk of “slippery extended downside” may be greater than a breakout rally. If data is clean through Friday then that may bring a substantial relief rally as traders remove bond hedges and press equity bets.

While rate data is critical, as discussed yesterday the market also needs good data from MU, tonight. The AI trade is struggling, and needs a reason to re-invigorate the upside trade.

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