There’s a lot to discuss, with markets moving quite violently in all directions—it’s hard to know where to begin—the economic data triggered much of yesterday’s movement. The JOLTS report came in much better than expected, but the ISM Services data stood out. The ISM Services Index was notably strong, but the key figure was the Prices Paid Index, which jumped to 64.4. Estimates were for 57.5, and last month’s reading was 58.2. This is the highest reading since February 2023.
This new ISM figure could signal another elevated CPI reading, but we’ll have to wait until next week to confirm. CPI swaps anticipate a 0.4% month-over-month increase for December, which will be critical to watch.
The bond market didn’t take yesterday’s data kindly. 10-year yields rose quickly to 4.69%, climbing six basis points on the day. There was also a 10-year Treasury auction at 1 PM. While not great, it wasn’t terrible—it earned a passing grade. Today will be more interesting, with a 30-year Treasury auction scheduled for 1 PM as well. Auctions were shifted a day due to Thursday’s market closure in observance of President Carter’s passing.
Today also brings ADP data at 8:15 AM, followed by initial and continuing jobless claims. The market has been focused on claims lately, as continuing claims have been dropping aggressively. Initial claims are expected at 215,000, and continuing claims at 1.86 million. ADP (NASDAQ:ADP) payrolls are projected at 139,000, down from last month’s 146,000. At 2 PM, we’ll get the FOMC minutes, which could also influence the 30-year auction.
After yesterday’s JOLTS and ISM data, markets are now pricing the next Fed rate cut for July 2025—previously expected in June.
There’s about a 50% chance of a second cut by December, but those odds have fluctuated. Markets are not reacting positively.
The 10-year yield broke above 4.62%, with the next resistance level at 4.75%. The 30-year yield closed at 4.92%, up seven basis points, surpassing the 4.82 resistance level. The next significant resistance appears to be around 5.1%.
Globally, yields are also climbing. The UK’s 30-year gilt hit 5.25%—its highest since 1998. Even Japan saw its 10-year yield close at 1.13% and its 30-year yield at 2.31%, levels not seen in years. The only exception to rising rates is China, where yields continue declining.
Five-year inflation swaps, which appeared to form a bull flag recently, broke out to the upside yesterday, rising four basis points to 2.49%. If we get more healthy data, a move to 2.60% seems plausible. Friday’s wage data will likely be crucial.
With rising rates and inflation expectations, equities struggled. The S&P 500 fell over 1%, while the Nasdaq dropped 1.8%. Yesterday, the S&P briefly reclaimed its 10-day exponential moving average but fell below that, and the 50-day simple moving average yesterday. This big question is whether the options market will allow the S&P to move lower. The most significant amount of put gamma is concentrated at 5,900, acting as a support level. A break below 5,875 could indicate a more bearish shift, potentially opening the door to much lower levels.
Nvidia (NASDAQ:NVDA) contributed 40% of yesterday’s decline, weighing heavily on the market. The stock was down over 6%. Of the Bloomberg 500, only 197 stocks advanced, while 301 declined, reflecting negative breadth. Without Nvidia, the S&P 500’s decline would have been only 33 basis points when using the S&P 500’s equal weight index as a proxy. Nvidia’s influence on the market remains substantial. yesterday’s decline created a bearish, engulfing candle.
It’s all about rates, the dollar, and inflation expectations. If economic data continues to surprise to the upside, rates could climb even higher.
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1. JOLTS Report – The Job Openings and Labor Turnover Survey measures the number of job openings, hires, quits, and layoffs in the labor market, providing insight into its strength and dynamics.
2. ISM Services Prices Paid Index – A component of the ISM Services Index that measures price changes paid by service businesses for inputs, used as an indicator of inflationary pressures.
3. CPI Swaps – Financial instruments that allow investors to hedge or speculate on future inflation as measured by the Consumer Price Index (CPI). They reflect market expectations for inflation over a specific period.
4. Term Premium – The additional yield investors require to hold long-term bonds over short-term ones, compensating for risks like inflation and interest rate uncertainty over time.
5. Gamma Level Erosion – A process in the options market where the impact of gamma (rate of change of an option’s delta) diminishes due to shifts in market conditions or options expirations, potentially altering price support or resistance levels.
6. Put Wall – The price level at which there is a significant concentration of open interest in put options. It often acts as a temporary support level due to the hedging activities of market makers.
7. Five-Year Inflation Swaps – Derivative contracts that allow participants to exchange fixed payments for floating payments linked to inflation over a five-year period, reflecting market inflation expectations.
8. Bull Flag Formation – A bullish chart pattern that resembles a flag on a pole. It indicates a brief consolidation after a strong upward move, suggesting a potential continuation of the uptrend.
9. Exponential Moving Average (EMA) – A type of moving average that gives greater weight to recent prices, making it more responsive to current market trends than a simple moving average.
10. ADP Employment Report – A private-sector report on employment trends, based on payroll data, that serves as an early indicator of the official U.S. jobs report, although it often differs in magnitude.
11. Options Market Gamma Dynamics – Gamma measures how much an option’s delta (sensitivity to underlying price changes) will change. Market gamma dynamics influence hedging activity and can amplify price movements at key levels.
12. Nvidia as a Market Driver – Nvidia’s outsized influence on market movements due to its significant weighting in indices like the S&P 500 and its role in sectors like semiconductors and artificial intelligence.