What Members Are Reading About Oil’s Grip on Markets, Credit Spreads at a Critical Threshold, and the Global Rate Hike Pivot
Here’s What We Covered This Week
Monday opened with a volatility-driven bounce as implied vol came down sharply from Friday’s elevated levels and oil pulled back from its overnight highs. But the rally stalled — our gamma model showed the market couldn’t reach the levels needed to flip back into positive territory, and by the afternoon, oil had found support again. The vol compression trade ran out of fuel almost immediately.
By Tuesday, the liquidity picture was shifting. Treasury bill paydowns were winding down, a large wave of coupon issuance was approaching, and the TGA is expected to rise substantially through mid-April — meaning liquidity stays tight well into May. Inflation swaps repriced sharply higher on energy, and options positioning ahead of Friday’s expiration set up a tug-of-war between gamma pinning the market and macro forces pushing it lower.
Wednesday brought the hot PPI print — producer prices came in well above expectations, driven by energy. The rise in gasoline so far in March could push the CPI sharply higher, and swaps are pricing in a big jump. The S&P 500 made its lowest close since November, sitting just points from the 200-day moving average. CTA flows were negative, and the put wall held below the market. After the close, Micron reported stellar earnings and guidance, but the stock was already trading down as calls heading into the print were getting demolished.
Thursday brought the full picture into focus. Credit spreads hit a historically significant level — the kind that in 2022 marked just the beginning of a much larger tightening episode. The chain was clear: rising oil prices are widening credit spreads, pushing the MOVE Index higher, and compressing equity multiples. A massive amount of gamma was set to roll off at Friday’s expiration, and we mapped the support levels below if selling accelerated.
The real story was global. UK short-term rates surged in a massive breakout, as the market priced in BOE rate hikes. The ECB is also now pricing in hikes as early as April. The BOJ is expected to hike later this year. Fed funds futures have priced out all remaining cuts, and the yield curve began flattening again — the first signs of the bond market pricing in recession. Meanwhile, Micron’s calls were practically worthless despite blowout results — the stock fell meaningfully, and it would have been far worse with in-line numbers.
Members of Navigating the Market had the framework for these moves — the gamma levels, TGA projections, CTA triggers, credit spread thresholds, and the global rate repricing that turned everything on its head. Here’s what we covered and what members are watching next:
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Disclaimer
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.