Volatility expected as options expire, Biden thinks gas is too expensive, and pandemic fallout continues.
Witching
The quarterly event known as “triple witching,” where stock and index options and futures on indexes expire, is happening today. Strategists at Goldman Sachs Group Inc. expect $3.4 trillion of equity options are set to wind down. The unusually high level of single stock options ending today points to a market that has been well hedged coming into the month. Investors have become increasingly interested in witching events this year as the S&P 500 Index has
tended to fall in the run-up to the event, as the options market drives moves in the underlying market it is an option on.Prices
President Joe Biden said his administration is “ taking a close look” at why gasoline prices in the U.S. are not going down. The cost at the pump to consumers has hit the highest level since 2014, as a recent New York Fed survey showing expectations of higher inflation are becoming entrenched. The president is also still fighting a battle with his fellow Democrats to try to get his $3.5 trillion economic agenda over the line, ramping up pressure in a speech and meetings yesterday.
Boosters
Advisers to the Food and Drug Administration meet later today to discuss whether booster shots should be offered to most Americans. President Biden is backing the move, despite some uncertainty over the scientific need for it, and criticism that introducing a third shot will further delay supplies to poorer countries. Meanwhile the pandemic continues to spread with Chinese cases rising, Singapore seeing its worst outbreak since last year and Alaska reporting near-record infections. Data from Mississippi, which passed New Jersey in deaths-per-capita, showed that one out of every 327 residents of the state have died from Covid since the pandemic began.
Markets mixed
Global equities are relatively quiet this morning ahead of options expiry later and next week’s Fed meeting. Overnight the MSCI Asia Pacific Index added 0.3% while Japan’s Topix index closed 0.5% higher. In Europe the Stoxx 600 Index gave up early session gains to trade largely unchanged by 5:50 a.m. Eastern Time. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.336%, oil was at $72 a barrel and gold rose.
Coming up...
The University of Michigan consumer sentiment reading for September is at 10:00 a.m. The Baker Hughes rig count is at 1:00 p.m. amid some signs of increased activity in the shale industry. President Biden will host a virtual climate change meeting with world leaders. Manchester United Plc reports earnings.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Beth’s interested in this morning
Gary Gensler, the new chair of the Securities and Exchange Commission, used his first appearance before the Senate Banking Committee to talk in part about market structure-based projects the agency is taking on across the financial markets, and in doing so dredged up some painful memories for the Treasury market. The market-structure projects also span equities, swaps and crypto in addition to the credit markets, where he said greater efficiency and transparency is needed generally.
Regarding Treasuries, Gensler called out the U.S. government bond market for its several face-plants in the past decade: the liquidity breakdown in March 2020 that caused the Fed to launch its latest asset purchase program; the September 2019 surge in overnight funding rates that resulted from an onslaught of new Treasury securities landing on dealers’ balance sheets just as cash was being sucked out by quarterly tax payments companies needed to send to the government; and, of course, the October 2014 "flash crash" in yields that spawned a 76- page analysis the following year.
Gensler expressed interest in proposals that have been made to bring central clearing to both cash Treasuries and repo, and in "how to level the playing field by ensuring that firms that significantly trade in this market are registered as dealers with the SEC." That's an apparent reference to the principal trading firms (PTFs), high-frequency traders that handle about half of the volume in the Treasury market.
Gensler referenced work completed earlier in the summer by former Treasury Secretary Timothy Geithner, whose Group of Thirty (!) panel of former economic policy makers recommended, among other things, an expanded role for central clearing. It's unlikely to come about, advocates have argued, without a regulatory mandate.
Follow Bloomberg's Beth Stanton on Twitter at @beth_stanton
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