Pressure valve
October 4, 2022
–The ten year yield dropped 14.5 bps to 3.653%. News swirled about an expedited FRB Board meeting yesterday; it barely matters whether it was previously scheduled or not, the market is attuned to myriad pressures on the Fed to abandon its inflation fight. For example, the UN called on the Fed to halt rate hikes. Rumors of problems at Credit Suisse harken back to times when Lehman was in the spotlight, years before the actual failure. Worth noting is CS market cap of just $10 billion, compared to Citi at $82b (and shrinking) or WFC at $152b. SNB portfolio is worth $147 billion of which the AAPL stake is approximately equal to the mkt cap of CS. Hard to imagine the Swiss will let CS fail.
–RBA hiked today, only 25 bps to 2.6% vs an expected 50 bps. In the US, current EFFR is 308 bps, if the Fed hikes 75 on November 2, EFFR will be 383. Yesterday FFX2 (Nov Fed Funds) settled -1 at 9628.5 or 371.5 bps, so this contract currently tilts slightly toward 75 rather than 50. FFF3/FFF4 settled back in negative territory at -8, indicating possible ease next year. Deferred eurodollar contracts soared in price, with reds +13 and greens +15.5. While the tightening campaign is expected to continue through year-end, it’s clear that the ‘Fed put’ is in play. There are plenty of Fed speakers today that could push back against the relief rally in equities (Williams, Logan, Mester, Jefferson, Daly). On the other hand, data like ISM Mfg New Orders (chart attached) shows the lowest activity outside of crisis periods.
–Gary Gensler, the head of the SEC, marshaled the resources at his disposal to get to the bottom of his core mission by fining Kim Kardashian $1 million dollars for her involvement with an artificial currency that is now nearly worthless. I know I am a LOT more confident about the integrity in markets and financial stability.
–Bonus ‘Pressure Drop’ youtube by Toots and the Maytals. Because if the markets have you a little confused, a little reggae helps.
