I’m off for a long weekend so this will be the last newsletter until Tuesday or perhaps Wednesday depending on how things work out. Happy Fourth of July to those celebrating!
Chart of the Day
The use of call options to bet on gains in individual stocks is once again on the rise. The 5-day average of US equity calls outstanding has risen by 8.6% in the past week, while the 5-day average of puts outstanding has fallen by 7.0%. The use of call options has coincided with the sharp rises in equity prices for many of the meme-type stocks that surged in price earlier in the year and then dropped back again, including EV companies such as Nio and related companies like Virgin Galactic. It’s important to be aware of the dynamics here because, as the green line shows, these phases tend to end abruptly, with the stock prices also facing similarly fast declines.
Macro
Ahead of the US non-farm payrolls report on Friday, the ADP employment report showed an increase of 692,000. Better than economists expected, but still less than the rise of about 900k in May.
Eurozone inflation fell to 1.9% in June, while core inflation fell to 0.9%.
Eurozone inflation fell to 1.9% in June, while core inflation fell to 0.9%.
The weekly EIA report showed crude inventories fell by 7.6 mn barrels last week and are now 1.3% lower than their average at this time of year over 2017-19.
The Chicago PMI fell in June and could be a sign the ISM surveys have peaked.
In the US, mortgage applications for house purchase fell by 4.8% last week and are now a little lower than before the pandemic started. Pending home sales nevertheless rose sharply in June, by 8%. That could be a sign that many cash buyers are still active in the market.
Markets
Some of the re-opening trades have been doing poorly lately, especially airlines.
At 21.2, the 12-month forward price/earnings ratio of the S&P 500 is much higher than elsewhere – mainly due to the higher weight of the big tech stocks.
For similar reasons, the lack of dividends from those companies keeps the dividend yield low. At 1.36%, the S&P 500 dividend yield is lower than the 10-year bond yield at 1.5%.
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