Following a short correction after the post-election runup, US equities continued their advance, recording the sixth positive month out of the past seven to reach new all-time highs, driven by continued strong 3Q earnings, reduced uncertainty about Trump’s administration picks and anticipation of strong year-end seasonality. Broader risk-on sentiment has also been supported by declining rates volatility and a weakening USD over the last week, reflected in the outperformance of the most shorted stocks vs. momentum stocks, leverage ETF trading volumes at 2021 peaks and retail equity fund inflows posting the largest weekly influx since late 2020. The single stock 1M put-call skew currently at 1YPc30 suggests that investors have positioned themselves for the Santa rally with single stock calls, and even though dealer gamma is still positive following an estimated 70% reduction after the November expiration, analysts estimate that gamma will turn negative with SP500 spot prices rising 2%, effectively leaving dealers short upside convexity.
As the US earnings season winds down in the upcoming week, the markets main focus will be on the US jobs data, as this is a number that could influence the December rate cut decision by the Fed. Economists estimate an added 214k jobs for November after strikes and hurricanes led to very weak October report. Consensus also expects unemployment to remain flat at 4.1%. The upcoming print is of particular importance given the very large downward revisions over the past year, and the potential for negative surprises given the unfavourable base effects should negative prior month revisions subside. Prior to Payrolls, we have the JOLTS report on Tuesday and the ADP and the employment components of the ISM manufacturing data on Wednesday's. Given the one-month lag in the JOLTS behind payrolls it is expected to be affected by the weather disruptions in October.
A number of important economic data points are scheduled for the main economies in Europe, including German factory orders on Thursday and industrial production and the trade balance on Friday. We also get French Industrial production on Thursday and the French trade balance on Friday. Other European data include the Swiss and Swedish CPI prints on Tuesday and Thursday respectively. Looking away from economic data, PM Barnier declared in the National Assembly in France today that he would use a constitutional mechanism to adopt the social security bill without a vote, leaving the possibility of a no-confidence vote all but certain. The French credit spreads (vs. Germany) moved higher on the news, reaching 88bp on the day, while the country's yields are now higher than they are for Greece.
We reiterate our CAC 40 trade idea Long Mar25 7400/6800 Put Spreads – Downside risks to earnings.