In today’s market wrap, we saw a mix of positive and negative signals that could impact the probability of a December rate cut. On one hand, the headline number was firmer than expected, but on the other hand, the unemployment rate rose and AHE (Personal Income and Outlays) came in lower than expected. According to our analysis, these factors should work together to slightly increase the probability of a December cut.

Firstly, let’s take a look at the technicals. Our CTA (Commodity Trading Advisor) forecasts supply in all scenarios over the next week, with a particular focus on the medium-term pivot level of 6457. Additionally, we noticed that the average S&P top of book liquidity has crept down to $6mm, which stands at the 20th percentile over the past year. This could be a sign of decreased liquidity in the market.

Furthermore, we saw an increase in ETF percentage of tape ticking higher to 40%, which could indicate that investors are becoming more bearish on the market. However, it’s important to note that this is still within the normal range and does not necessarily signal a major change in market sentiment.

Looking ahead to tomorrow’s expiry, we estimate that the largest notional open interest expiration for any November will occur, with an estimated $3.1trn of notional options exposure set to expire. Of this amount, $1.7trn is in SPX options and $725bn is in single stock options. This could have a significant impact on the market, particularly if there are any surprises in the expiring options.

While the headline number was firmer than expected, the mixed signals from the technicals and the potential for large options expiration tomorrow suggest that the probability of a December rate cut remains uncertain. As always, it’s important to stay vigilant and keep an eye on market developments in the coming days and weeks.