New shorts in front of payrolls
August 6, 2021
–Payrolls today expected 870k with yoy Avg Hourly Earnings expected +3.9% from 3.6 last. Technical seasonal factors are a tailwind behind NFP forecasts. In the past few days, Clarida said he expects the next couple of jobs reports to show strength, and Waller said he was hoping for strong data. Is it possible they’re telegraphing what they have already seen in comparable data? Once again, greens (3rd year on strip) led the way lower, closing -6.0 on the day, bringing the two day loss to almost 11.5 bps. EDZ3 traded a high of 9923 on Wednesday and now prints 9904.
–Large option plays reinforced weakness in greens, for example, a buyer of 40k 2EZ1 9875/9850ps for 3.75 to 3.80 synthetically (settled 4.0 vs 9906 in EDZ3) and a buyer of 40k 2EH2 9875/9825ps for 8.5, which settled 10 ref EDH4 9897.5. This latter spread has a delta of 21, so approximately 8k futures, and open interest rose in the underlying contract by 18k. Also worth a mention is a rise in EDZ’24 open interest of 30k contracts. Settlement price was 9873.0, down 5.5 on the day. Of course, this was one of the legs on the EDZ’22/EDZ’24 buy recommendation from a couple of weeks ago over 100 bps. The spread traded 80 on Wednesday and settled 84.0 yesterday. Somewhat interesting that it appears shorts are being aggressively added to one leg of a spread position that remains under water, even as the biggest report of the month looms. On a technical basis, EDZ4 traded a high of 9889 on July 20. It then put in a low of 9866.5 on July 22, had a small bounce and then equaled the 9866.5 low on July 28. On Wednesday’s ADP it eclipsed the July high by 0.5, printing 9889.5, and is working on an outside weekly range (current price 9869.5). A close below 66.5 would signal a double top with an objective around 9844. By the way, the low after the hawkish June FOMC was 9833.5, so there has been a good deal of play in this contract.
