4.25% by year-end…then crickets?
October 7, 2022
–NFP today expected 250k. CPI is Wednesday. Auctions of 3s, 10s, 30s start Tuesday.
–NY Fed has a relatively new measure of Global Supply Chain pressures which has declined for five consecutive months and is back to more normal levels, unless you’re looking for a good proscuitto sandwich.
https://www.newyorkfed.org/research/policy/gscpi#/interactive
–Nothing from Fed officials to indicate a pivot toward ease. Flatter curve yesterday with 2 and 5 yr notes up 10 bps and tens up only 6.7 (to 3.82%). Some time ago, trade in Friday NFP options would be dominated by TY puts. Yesterday there was a new buyer of 20k FV week-1 (today expiry) 107 puts for 7. Settled 9 ref 107-12+. A bearish number expected to hit the belly hardest. In dollars, reds were the weakest part of the strip, down 11.125, with greens -7.25 and blues -6.5.
–Jan’23 and Jan’24 Fed Fund contracts settled at almost the same price: 9570.5 and 9570.0. In the month of September, the spread ranged between -37 mid-Sept to +22 in the later part of the month. Now settling in around zero? What if that’s correct?…a full year of an idle Fed with funding rates locked in around 4.3%. Of course, prices have been bouncing around somewhat erratically, and there’s probably little to be gleaned from this particular spread; SFRZ2/Z3 settled -9.0 (9562.5/9571.5). The idea is, with the jobs market moderating, and yoy comparisions leading to slowly declining inflation data, would it be bad strategy to just announce a hold on rates and let balance sheet reduction continue? Odds are, it won’t happen, but…red dec ED and SOFR straddles are >135. Could they be more like 125 next Friday?
–Columbus Day Monday. Bank holiday but exchange is open…might take that off.
