Thread by @WizOfOps

Good Morning! An interesting day yesterday as a vanna spike at 3950 was pulled down from a very strong dollar. It was like a game of tug of war that the dollar sort of won. Macro bros still have a lot to say today with jobs data and rumored Chinese pivot regarding Covid.

Talking about a Chinese pivot first because it is easy. If that happens, I would expect a very strong bullish surge. It doesn't solve all of our problems here, but will produce a surge in demand. That surge will also hurt inflation, however. So it would be short term bullish..

But tougher long term economic impact as commodities increase in cost, energy prices increase, and worldwide demand increases. That can make inflation worse.

As for jobs, I was shocked to see in #volland that it was dramtically underhedged. The straddle price for today is $55,

Which was very close to the FOMC straddle price earlier this week. The jobs, CPI, and FOMC straddle prices have been exceeded frequently recently, and we would need to see a goldilocks jobs number to rally off of it. Too low, recession fears... too high, FOMC fears.

The fact that jobs are very underhedged is curious.

Finally, there are more catalysts next week, with midterms amd CPI. CPI is obviously a big deal, but midterms are not pricing in much event vol at all. Honestly, that is probably accurate.

I see a lot of talk about midterms being a catalyst, but I can't think of a scenario where midterms substantively change markets or the economy, particularly in a 25 vol environment. Midterms are not a huge deal at this point, so the focus should be on CPI...

Where the "transitory" inflation prints fall off the YoY calculations and give the appearance of fading inflation. I am not sure how markets will react to numbers with a 6 handle even as MoM inflation is little changed.

Let's see where jobs take us, and have a good weekend!