Institutional Insights: Nomura Sales Strategy Desk View #SP500
According to Nomura's Head of Sales Strategy, three key factors are weighing on markets now
"Risk sentiment remains fragile, where death by Macro papercut reigns locally: 1) Poor Eurozone PMIs continue to show European activity softening (particularly in Germany which CONTRACTED for the first time since March), while
2) a recent spate of Corporate Earnings have shown a few high profile “meh” US releases too which disappointed vs expectations in TLSA, GOOGL, V and AMZN feed concerns about Mag7 crowding and Consumer (while DB and LVMH big misses and fueling more significant concerns about the magnitude of the aforementioned European growth slowdown)—and additionally,
3) further “hawkish” price-action in Yen on a BoJ hike “sources” story for next week’s meeting continues to take bodies and drive ongoing unwind in G10 FX Carry and Momentum"
From a “key level” perspective, a push through SPX 5500 would be problematic, as we see actual Dealer “Short Gamma” imbalance at the strike, which also coincides with said trade through the SPX 50DMA and no real help until the 50DMA down at 5424
Looking-out, the tactical Eq bull / Vol bear will continue to lean on
1) mechanical Vol supply being provided by the Options selling “premium income / overwriter / underwriter / autocall / QIS / dispersion space,” whose assets only continue growing—which means rules-based Vega supply like clockwork which can then provide a Vanna tailwind to the market, then pairing-up with
2) the prior observation made about the natural “short correlation” trade into earnings seasonality, as we tend to get that dispersion impulse of winners / losers which then further bleeds rVol / iVol a few weeks out as we get more EPS releases…
From a bearish “Tail,” the market does NOT want Harris and her strategically swing-state VP pick to storm into outright leads—especially now that breaking the link to ultra unpopular POTUS Biden has already turned the local races Blue already—simply on the perception of stagflationary policy, particularly with the legacy Trump Tax cuts set to expire, alongside onerous regulation on fins and energy, versus perpetuation of green build…i.e. the Blue Wave, which is the antithesis of the bullish “DC Gridlock” trade
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!