April Fools
April 1, 2022
–PCE prices came out about as expected, 6.4% yoy with Core 5.4%. Today the employment data is released, with NFP expected 490k vs 678k last. Unemployment rate expected 3.7 from 3.8 and yoy Avg Hourly Earnings expected +5.5% from 5.1% last. Since the year 1970, there has only been one year with readings at 3.7% or lower and that was in 2019, before covid. From April 2019 to Feb 2020 the rate stayed between 3.7% and the historic low of 3.5%.
–End of the day/month/qtr was a tough one in stocks. A BBG article says that “Losing 5% in stocks and bonds was the best you could do in Q1” and further notes that around $3 trillion of wealth disappeared. Is there a reverse wealth effect? We’re about to find out. As Ralph Kramden said, “It came easy and went just as fast.” It’s not just stocks, higher mortgage rates are likely to chew into real estate values. At least there’s a little relief on energy prices, as CLK2 settled -7.54 at 100.28 on the Biden admin’s ingenious plan to burn the furniture to heat the house...oops, I mean to sell oil from the SPR.
— Eurodollar curve made new lows from reds back. Picture attached. When the recession starts, refer back to this. Atlanta Fed’s new estimate puts Q1 GDP at 1.3%, but the comps are going to start getting harder.
–Planting estimates show that increased fertilizer costs are causing a shift to beans from corn. From Reuters’ Karen Braun “Chicago-traded Dec corn futures surged more than 4% on the data, reaching a contract high of $6.91 per bushel, easily a record for the date among past new-crop contracts.” I’m not a political strategist, but if I were advising the Biden admin I would suggest selling whatever corn the US gov’t has stashed away. You’re welcome.
–Implied vol continues to come out of the market. Here are some week over week comparisons:
3/24 settles on top with 3/31 below
EDM2 9843.75^ 32.75
EDM2 9850.00^ 27.5
0EM2 9700.0^ 51.5
0EM2 9687.5^ 48.0
2EM2 9737.5^ 52.0
2EM2 9712.5^ 48.0
TYM2 123^ 2’61
Now TYM 123^ 2’36…if same vol as 24th it would be 2’48
However, long dated straddles in reds and greens expanded over the week.EDM3 9700.0^ 119.5
EDM3 9687.5^ 124.0
EDM4 9737.5^ 145.0
EDM4 9712.5^ 157.0
