Market Fluctuations: Nvidia Gamma Squeeze Loses Steam, Focus Shifts to Jobs and Global Easing Cycle
Yesterday's Nvidia-driven market surge, which saw the AI chipmaker's market cap surpass $3 trillion and Apple's valuation, was followed by a comparatively uneventful session today. The S&P closed with no change, following a day of minimal movement.
There were three primary reasons for this stagnation.
Firstly, Technical Factors
As noted by Goldman's Brian Garrett, ES 5350 is the "magnetized" strike, with a record $9.5 billion of gamma set to trade per 100bps. This implies that dealers would need to sell 35,000 eminis on a 1% rally and buy 35,000 eminis on a 1% sell-off. Essentially, the record dealer gamma is now preventing any drastic movement in either direction from 5350.
Secondly, Tech Momentum Slowed
After yesterday's impressive gamma squeeze in NVDA, today saw an early morning "rugging" of NVDA. The stock lost $175 billion in market cap just seconds after the cash close as call holders liquidated positions. This effectively halted momentum and ensured the gamma squeeze would fade away quietly.
Consequently, NVDA could not maintain its newly acquired position as the world's second most valuable company. It promptly relinquished this position and the $3 trillion market cap threshold back to AAPL, at least for the day. However, tomorrow is another day, and the pre-10:1 stock split bulls may try to make NVDA the world's largest stock, ahead of Monday.
Thirdly, Event Risk
Tomorrow, a crucial jobs report is due. Payrolls have regained their importance over inflation. Dealers are currently the longest spot gamma in history but are net short the upside tail. This suggests that investors are hesitant to place significant directional bets ahead of a print that could ignite momentum in either direction, depending on the NFP print outcome.
Goldman believes that the current setup favors stocks, with a goldilocks NFP zone in the low 100s as stocks continue to cheer for a manageable slowdown. Big Data measures indicate a below-average pace of job creation during the spring hiring season, and our layoff tracker has rebounded. The Street is expecting a headline reading of +185k (GIR +160k, prior +175k).
Despite today's lack of action, with little newsflow besides a tweet from Roaring Kitty that sent GameStock soaring more than 40%, another historic event quietly occurred. The ECB became only the second G7 bank to cut rates after a 5-year hiatus, even as the central bank raised its inflation forecasts.
This guarantees that any pretense of a 2% inflation target is dead and buried, a fact not lost on gold and silver, which have both soared since Canada cut rates first yesterday. Oil has also recovered a significant portion of its recent losses.
Ironically, the only asset class that seemed oblivious to the return of central bank easing was crypto. Both bitcoin and ethereum experienced a drop, even though they have traditionally been the best early indicators of shifting liquidity and volatility conditions.
This guarantees that the army of bitcoin ETF buyers, who now own 1 million bitcoin among them, leaving less than 20 million available, will have another cheap entry point.
This article is a fascinating look into the intricacies of the global market and the factors that can influence its movement. What are your thoughts on this? Do you think the Nvidia gamma squeeze will pick up again, or is this the start of a new trend? Share this with your friends and discuss! Also, don't forget to sign up for the Daily Briefing, available every day at 6 pm.