The last two tests of the US stock market this week: "Terrorist Data" and "Four Witch Days" strike together

time:2022-12-02 11:03:08 author:Aerospace stock
The last two tests of the US stock market this week: "Terrorist Data" and "Four Witch Days" strike together

After suffering the tragic "Black Tuesday", the three major U.S. stock indexes on Wednesday reluctantly turned up collectively with a wave of gains before the close. While the continued cooling PPI data has brought some solace, the short-term outlook for U.S. stocks remains a cloud of fog. According to CME's "FedWatch" tool, after Tuesday's higher-than-expected U.S. CPI data sparked bets on the Fed's aggressive interest rate hikes, the market's bets on the Fed to raise interest rates by 100 basis points next week have retreated on Wednesday. Right now, interest rate markets are pricing in about a 30 percent chance the Fed will raise rates by 100 basis points this month, up from about 35 percent a day earlier. But investors may still not be able to breathe a sigh of relief. Although bets on a 100 basis point rate hike in September have cooled, the probability of a 75 basis point rate hike in November has risen further to 54.9%, and the probability of a 50 basis point rate hike in December has also reached around 40% . Source: CME Group Looking ahead to this week, Wall Street traders will face the last two major tests in the two trading days of today and tomorrow - scary data and the imminent arrival of the Fourth Witch Day.

"Terrorist data" hits tonight, what will be the specific impact?

Among them, August retail sales data will be released tonight at 20:30! If tonight's data is strong, it may push the market to believe that the Fed's aggressive rate hike is justified. The reason why it is called "horror data" is that about 70% of the economic growth in the United States is driven by consumption, and retail sales account for 40% of consumption. Therefore, retail sales data is very important for judging the current situation and prospects of the US economy. important guiding role. According to market forecasts, the monthly rate of retail sales in August was 0%, compared with 0% in July. At present, it is tentatively expected that there will still be no growth in U.S. consumer retail demand, which is not a good sign for the U.S. economy. The actual performance of the data will directly affect the market's bets on the Fed's next move, and hit the stock market and the dollar. Source: Futu Niu Niu-Information-Calendar

"Four Witch Day" arrives on Friday, can US stocks clear customs smoothly?

Friday, the last trading day of the week, will mark the third "Four Witch Day" of the year. "Four Witch Days" are the quarterly expiry dates of financial derivatives in U.S. stocks, which occur on the third Friday of March, June, September, and December each year. On the same day, stock index futures, stock index options, individual stock futures and individual stock options expire at the same time. During this period, U.S. stocks and derivatives prices fluctuated sharply as investors rushed to close their positions, which usually led to a sharp increase in trading volume. Put options that had been worthless during last week's rally returned to the market, forcing market makers to sell underlying stocks to hedge their positions, as better-than-expected inflation data sent Wall Street through its sharpest decline since June 2020. . So with those bearish contracts expiring on Friday, traders' activity has become more sensitive to movements in the spot market. This time around, options with a notional size of $3.2 trillion will expire, the data showed. Source: Bloomberg mentioned earlier that on the Fourth Witch Day, the market trading volume will increase significantly. One of the main reasons is that options and futures contracts will automatically settle with offset transactions. Taking options as an example, in-the-money options will automatically settle on the expiration date. As a result, the number of these deals completed will increase dramatically. In addition, trades involving large contracts may create price volatility during the Fourth Witch Day, which will provide arbitrageurs with the opportunity to profit from temporary price distortions. Arbitrage can quickly expand trading volume, especially when the volume is large and repeated many times. As shown in the figure below, through the statistics of the trading volume and the rise and fall of the four witch days and the two trading days before and after since 2019, it can be found that the trading volume of the four witch days has increased significantly and most of them closed down. In summary, the positive impact of the Fourth Witch Day on the market is that carry trades bring profit opportunities, and trading activity, i.e. increased volume, may lead to a rise in the market. On the negative side, history shows that profitability does not improve, market gains are usually modest, volatility brings gains, but losses are equally pronounced. Therefore, investors can predict the trend of the market outlook through the performance of historical data, but at the same time, they need to make judgments based on market news. The good news is that there has been no significant increase in derivatives market positions amid sluggish equity trading volumes amid Tuesday's rout, said equity derivatives strategists at RBC Capital Markets. This means that options traders' hedging trades may subside accordingly after the Fourth Witch Day. As for the trend of the market outlook, the chief investment strategy analysis of CFRA Research said that from the historical data, after a 4% drop in a single day, it will often follow a 1% rebound, but it will continue to trade sideways in the next month. Consolidate and return to the rising channel in the following three months. Niu friends, what do you think of the retail sales data to be announced tonight? How will the "Four Witch Days" stir the market? You are welcome to leave your opinions in the comment area~Editor/somer Risk Warning: The opinions of the authors or guests shown above have their own specific positions, and investment decisions need to be based on independent thinking. Futu will endeavour but cannot guarantee the accuracy and reliability of the above content, and will not be liable for any loss or damage arising from any inaccuracies or omissions.

(Responsible editor:Aviation stock)