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Wall Street strategists confront a short squeeze, a trillion-dollar options expiry event gets added volatility and investors await a verdict [View in browser]( [Bloomberg]( Wall Street strategists confront a short squeeze, a trillion-dollar options expiry event gets added volatility and investors await a verdict on Japan’s yield curve control. —[ Kristine Aquino]( Short squeeze The year is only halfway over, yet [the S&P 500 has barreled through most year-end estimates by Wall Street](. That leaves strategists in a dilemma, Bloomberg’s John Authers and Isabelle Lee write. Piper Sandler’s Michael Kantrowitz, the most bearish in a Bloomberg poll in January, has lifted his initial target of 3,225 to a range of between 3,600 and 3,800. “As we think about where the S&P 500 will end in 2023, the year-to-date move makes it difficult for us to continue justifying our year-end target that we published back in January as large-cap market indices have appreciated a lot year-to-date,” Kantrowitz wrote in a note to clients. Options frenzy [A $2.4 trillion options expiry event on Friday may get extra volatility]( from the Nasdaq 100’s special index rebalancing to reduce the dominance of technology megacaps. The options even — known as OpEx — generally sees Wall Street managers either roll over existing positions or start new ones. Meanwhile, the Nasdaq index may see passive investors use the last window to bring their portfolios in line with the benchmark before the changes take effect Monday.  “There may be fireworks,” said Dennis Davitt, a fund manager at Millbank Dartmoor Portsmouth. Curve control The Japanese yen extended declines after people familiar with the matter said [Bank of Japan officials see little urgent need to address the side effects of its yield curve control program](, though they expect to discuss the issue. The central bank looks at the costs and benefits of its policy at every meeting and will reach a final decision at its policy meeting next Friday, the people added. Yield curve control has been criticized by bond traders for distorting market pricing and liquidity, though less than a fifth of economists surveyed by Bloomberg think the program will be adjusted or scrapped as soon as next week. Upbeat futures S&P 500 futures climbed 0.2% as of 6:18 a.m. in New York, while Nasdaq 100 contracts advanced 0.4%. The Bloomberg Dollar Spot Index traded near the day’s highs, pressuring most Group-of-10 currencies, with the yen suffering the biggest declines. Treasury yields were little changed, mirroring lackluster trading in European and UK bond markets. Brent crude rose more than 1%, while gold fell and Bitcoin gained 0.2%. Coming up… At 8:30 a.m. New York time, Canada will report retail sales data for May, while the latest Baker Hughes Rig Count figures will be published at 1 p.m. Earnings include American Express, Schlumberger and Comerica. What we’ve been reading Here’s what caught our eye over the past 24 hours: - [“Category 5 hurricane” will plague investors]( until Fed clarity emerges, billionaire Barry Sternlicht says - Inside fund manager Terry Smith’s [$1 million breakup spat in Mauritius]( - [UK consumers keep shopping]( despite a decline in confidence - [A black market for tutors expands in China]( after a $100 billion ban - Michelin-starred menus are[suddenly featuring the “poor man’s grain”]( - [The role of genes]( in the severity of Covid-19 illness - [Making babies via IVF]( may be about to get way easier And finally, here’s what Vassilis is interested in this morning… It’s that weird feeling that returns when it’s time to take my summer break: While it seems like ages since I spent some time away from the screens, around New Year, at the same time it feels like yesterday that I was commenting on news that broke out during the first quarter of the year. How well do you remember the US banking crisis, market volatility during CPI releases or the calls for the end of dollar dominance? We’ve been through more than a few narrative shifts during the first half of the year, and I suspect similar ones will develop into year-end. But for now, here’s a brief list of the alerts that will hit my phone in the next few weeks and actually force me to put my book to one side of the sunbed. First off, next week is all about central bank meetings. So I’ll be looking for surprises from the Federal Reserve and the European Central Bank, as well as the Bank of England in early August. Not so much on whether we get a hike or not, but as to what kind of forward guidance central bankers decide to adopt. Powell and Lagarde will probably try hard to keep markets away from betting on easier policy any time soon. But the Bank of Japan meeting in a week’s time will be my main focus. One of the main bets for interbank traders and hedge funds for the year is about to get tested. Once again. Will policy makers move to a tighter stance? Earlier this week, traders bet that would be the case, but conviction has now dropped. The fact that dollar-yen trades around the 140 handle should be considered as a factor that gives BOJ officials a little bit more time before changing course. Should they stay pat, I would expect to see a short squeeze in the dollar, across the board. One-week implied volatility in dollar-yen that now captures the policy risk is at the strongest level in four months as it heads for the biggest daily gain since October. The stakes are quite high, which means that the outlook into Jackson Hole could be very different than currently. Certainly, I’ll be keeping an eye on US jobs data but inflation releases should be assigned once again a higher beta as that’s what could spark further curve inversion. So the PCE deflator on July 28 and CPI on August 10 will have my full attention, and probably ISM figures on Aug. 1 as well. We have frequently discussed the issue of FX volatility during the first half of the year: why is it so low, is it actually low, when will it pick up, and so forth. And every single time I wrote about volatility, I went back to the times when interbank traders made markets in size, not through adjusting an algorithm, but by going against the flow. That’s why the first book I’ll put in my backpack is Liar’s Poker. I haven’t read it in more than a decade, so what’s better than getting nostalgic and having a good laugh at the same time? But I have to buy a new copy as I’m getting old and I don’t recall who’s borrowed the original. If it’s you reading this, you have two days to send it back. — [Vassilis Karamanis]( Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. 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