Last week was a wild week in the markets, we saw VIX ($VIX) slowly rise all week until the Fed Meeting minutes were released when it exploded higher. Markets had a corresponding drop at the same time. The second half of the week posed a decent recovery though with the S&P 500 ($SPX) (SPY) finishing up 0.10% on the week.
US unemployment was also a miss with Nonfarm payrolls coming out weaker than expected for the first time in over a year. This week there looks to be significantly fewer news releases, but that doesn’t mean they aren’t impactful. And with earnings around the corner again they could be a glimpse at what's to come. Here are 5 things to watch in the markets this week.
VIX
The VIX started to spike at the end of last week's trading. The Index has been trading sideways since early June so a break to the upside could mean some volatility is coming back to the market. This does not necessarily mean the market will fall, it just means that price swings could be larger than what we have seen in the past month or so. An increased VIX often increases the prices of options as the IV will be higher across the board, this could just be something to watch going forward.
CPI
Consumer Price Index is out Wednesday at 8:30 am Eastern time and this report usually causes some volatility upon release. Also with last week's Fed Meeting Minutes showing that several members were not in favor of a pause in rate hikes, a higher-than-expected inflation number could put more aggressive hikes back on the table. At the same time, if this is better than expected then this could mean an extended pause, which is generally accepted as better for the markets.
10 Year Auction
These bond auctions don’t often have a huge volatility impact on the market when they start, but it's possible that they will have an impact on a more macro level. With interest rates on mortgages ticking up over 7.5% in the US last week, watching what investor appetite is on the 10-year could provide some insight into how outside investors are viewing credit markets. While the rate set is important, potentially more important is the Bid to Cover ratio (the back half of the reported quote). A drop in this number could show a drop in investor confidence.
PPI
Similar to the CPI is the PPI, which is due out at 8:30 am Eastern on Thursday. Produce Price Index shows the change in the finished price of goods charged by producers. A positive number is associated with increasing prices and a negative is associated with decreasing prices. While typically a small increase in prices is considered “healthy” by the FED, given how hot inflation has been in the past few years the market may react positively to a miss rather than a beat here. This also potentially has some larger macro implications with upcoming FED rate decisions.
Prelim UoM Consumer Sentiment
The UoM consumer Sentiment data is released Friday at 10 am Eastern. This piece of data shows how positive or negative the current economy and economic outlook are in the eyes of the consumers. A beat shows that there is more optimism in the markets and a miss shows more pessimism. While this release could move the markets, keeping an eye on how these data trends are also fairly important. If the number is stable or trending up then consumer confidence is good. If it trends down then obviously sentiment is poor. This is important because it directly impacts the expected spending habits of consumers.
Best of luck this week and don’t forget to check out my daily options article.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
