Powell deflated
March 5, 2021
–The market wasn’t overly impressed with Powell’s delivery yesterday. Curve steepened to new highs, stocks took a tumble. EDZ’25, the 20th quarterly contract or last gold, settled 9799.5 (down 10.5), the first settle above 2% since July 2019 when the FF target was 2.25 to 2.50. The red/gold euro$ pack spread has been exploding and settled 156.5 bps, up 9 on the day, which is about halfway from the 2013 high of just over 300 bps to the late 2018 low of just under zero. 2/10 ended at 141, up 8 bps to a new high. The ten year yield finished at 154.8, up 8.1.
–Implied vols perked up appreciably, and treasury options have become quite a bit looser in the past several days. With just three weeks left, TYJ 132.5 atm straddle settled 1’29 or 5.6 vol. In more ‘normal’ times the atm straddle is around 1 point with one month to go.
–A lot of buying once again in EDU2/EDZ2 calendar with volume of 125k in that spread alone with a late quote of 13.5/14.0 (13.5s). I suppose a part of it is the turn, although the Sept/Dec/March fly has been fairly well behaved, settling at 3.5. Current 3-month libor is around 18 (it’s bouncing around that level). EDZ2 settled 9956.5 for a spread of 25.5. There’s your first expected hike (which the market will continue to move forward as inflation figures accelerate). CLJ prints a new high of $65/bbl this morning.
–Employment report today to cap a busy first week in March. NFP expected 200k from 49 last. YOY Avg Hourly Earnings expected +5.3% from 5.4 last.
