Wall Street Desks Warn CPI Report May Upset Stock-Market Calm

May 13, 2024

Observations & Insight

Volatility Insight of the Week: Corn skew, as measured by CME Group’s Corn volatility index, is nearing a 9-month high, which suggests options traders are more heavily positioning for upside risk. To learn more about CVOL, please visit HERE.

Lead Stories

Wall Street Desks Warn CPI Report May Upset Stock-Market Calm; JPMorgan focuses on different parts of inflation data; Citi sees implied volatilities higher for CPI, Nvidia earnings
Jess Menton – Bloomberg
From JPMorgan Chase & Co. to Citigroup Inc., Wall Street’s most prominent trading desks are warning that investors should gear up for a potential break in the calm that’s come over the market.
The options market is betting that the S&P 500 Index will move 1% in either direction after Wednesday’s report on consumer prices, based on the price of that day’s at-the-money straddles, according to Andrew Tyler, head of US market Intelligence at JPMorgan Chase’s trading desk. For Stuart Kaiser, Citigroup’s head of US equity trading strategy, the broader market is bracing for a move around CPI that’s in line with expectations on May 23 — the day after Nvidia Corp. delivers its latest earnings results.

GameStop Shorts Dealt $1.4 Billion Paper Losses in Meme Revival; Shares surge as much as 119% in early trading on Monday; Stock gains in May reverse drop in year’s first four months
Bailey Lipschultz – Bloomberg
Skeptics betting against video-game retailer GameStop Corp. are facing a more than $1 billion loss after the company’s share price roughly tripled this month.
Shares of the meme-stock soared as much as 119% in a raucous open Monday amid a flurry of trading activity that triggered at least eight halts for volatility in the opening hour. With the stock up some 185% in May, mark-to-market losses for short-sellers has ballooned to $1.4 billion, according to S3 Partners data.

GameStop Stock More Than Doubles as Roaring Kitty Returns. AMC, Hertz Gain.
Jack Denton – Barron’s
Shares in GameStop saw repeated trading halts on the New York Stock Exchange on Monday amid extreme volatility that triggered interventions from the exchange. Brace for more big moves.

***** Also see GameStop soars in meme stock flashback as ‘Roaring Kitty’ reappears from the Financial Times and/or Roaring Kitty is back, and GameStop stock is rallying. The company still is struggling to make money from MarketWatch and/or GameStop soars after flag bearer ‘Roaring Kitty’ resurfaces from Reuters.

GameStop short sellers have already lost $1 billion from Monday’s monster rally
Yun Li – CNBC
The jaw-dropping rally in GameStop on Monday has already caused losses of $1 billion for short sellers, according to data from S3 Partners.
Just one hour into Monday’s trading as of 10:30 a.m. ET, with GameStop soaring as high as 110%, short selling hedge funds have suffered a mark-to-market loss of $1.02 billion in the brick-and-mortar video game retailer, data firm S3 Partners said.

Cocoa Plunges 19% as Rain Forecasts Stoke Market Volatility; Rain in Ghana, Ivory Coast and Indonesia should help crops; Lower open interest in markets aids bigger price swings
Celia Bergin and Ilena Peng – Bloomberg
Cocoa futures in New York saw the largest price drop in records going back more than 60 years, with a forecast of wetter weather for key producers feeding further volatility to the market.
The most-active contract in New York fell as much as 19% on Monday, while London futures fell as much as 18%. Rainfall is boosting the outlook for crops, and low open interest in cocoa markets is amplifying price moves.

Regulation & Enforcement

Dissenting Statement of Commissioner Caroline D. Pham on Event Contracts Proposal
I respectfully dissent from the Event Contracts Proposal because it takes the CFTC’s regulation of event contract markets backwards with its fundamental misunderstanding of how we regulate derivatives and the States regulate gaming. Instead of thoughtfully considering how to effectively regulate these markets while fostering innovation, the Event Contracts Proposal ties itself in knots over the bounds of gaming, which Congress has neither asked nor directed the Commission to regulate. I am simply disappointed in this wasted opportunity to regulate retail binary options, sidestepping our responsibility, and concerned about its legal impact.

China reduces access to live data on share trades by foreign investors; Regulators intensify efforts to curb volatility and introduce measures to bolster market sentiment
Cheng Leng – Financial Times
China has shut off live trading data on foreign investors’ dealings in mainland shares as regulators intensify efforts to bolster stock market sentiment and avoid a repeat of a steep sell-off in February. The change, which took effect on Monday, affects data on so-called northbound trades from Hong Kong – those made by investors buying and selling shares listed on the Shanghai and Shenzhen exchanges through the Stock Connect trading link.

China and ESG ETF closures soar in face of political backlash; Culls have been enacted despite surging enthusiasm for ETFs generally, with 58 successive months of global net inflows
Steve Johnson – Financial Times
More US-listed China-focused exchange traded funds have closed down since the start of this year than in any previous full year as investors continue to fight shy of the world’s second-largest economy. Liquidations of ETFs investing on the basis of environmental, social and governance (ESG) factors are also on track to smash through prior records – both in the US and globally – amid a backlash against the concept.

Cboe imposes $170,000 fine on Hilltop Securities
Maria Nikolova – FX News Group
Hilltop Securities Inc. has agreed to pay a fine of $170,000 as a part of a settlement with Cboe Exchange, Inc.
The matter originated from a review conducted by FINRA’s Department of Market Regulation regarding the Firm’s compliance with its obligations to report listed option positions and related information to the Large Options Position Report (LOPR).


The Random Path to Stock-Market Riches; How we made 80% in a year without really trying
Spencer Jakab – The Wall Street Journal
Words rarely heard from star fund managers: “I just got lucky.” Some might blame poor timing or unforeseen events for a lousy year, but success is somehow never an accident. It most certainly was for Heard on the Street’s columnists as we once again trounced the best and the brightest in the hedge-fund world. There are lessons here that could boost anyone’s stock portfolio. Repeating an exercise from 2018, Heard’s columnists took a cue from Burton Malkiel, author of the investing classic “A Random Walk Down Wall Street,” and threw 12 darts at stock-market listings a year ago (he suggested using blindfolded monkeys). We competed against the fund managers presenting their best ideas at last May’s Sohn Investment Conference in New York City. Both the stocks and the type of bet, long or short, were beyond our control.

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