Fed’s easing in Sept. We KNEW that already
August 1, 2024
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–The financial press has sniffed out a scoop this morning: THE FED MAY EASE IN SEPTEMBER.
–October Fed Funds appropriately reflect the market’s odds of an ease at the Sept 18 FOMC. Currently, the EFFR (which FF contracts settle to) is 5.33%. An ease would put EFFR at 5.08% or 9492.0 in price. Oct Fed Funds have settled at 9491.5 or higher since July 11. Yesterday’s settle was 9495 or 5.05%, down -0.5 on the day. In other words, the market has essentially priced certainty of an ease for weeks.
–Not much else emerged at the press conference, though rate futures surged coming out of Powell’s appearance, with Iran’s vows of retaliation against Israel likely boosting a safe haven bid. For example, TYU4 settled 111-26, +8. Open interest jumped 51k, a sign of continued long accumulation. TYU 112.75c settled 20, but were bought in size of 15k for 24 post-settle. Late in the session TYU4 was trading 112-08 and is 04+ as of this note. At futures expiration, the Five-yr was yielding 3.996%, the first sub-4% since February. Late price in CLU4 (WTI crude) was 78.48, +3.75 on the day.
–The story isn’t so much whether or not the Fed eases in September (they will). The larger question now concerns the magnitude and pace of ease. The market is providing some clues, which could just as easily be an overshoot as an undershoot. New low in SFRU4/SFRU5 at settle at -134 (9496.5/9630.5). Just after settle the spread traded -140 (9497/9637). So we’re getting around the idea of 5 to 6 eases in a one-year period. Crazy? I take a sidelong glance at the world’s news and that doesn’t even begin to approach the level of crazy.
–Today’s news includes Jobless claims expected 235-240k. ISM Mfg 48.8 from 48.5 last. Tomorrow’s NFP expected 175k. META soared 6% on its earnings release post-close. Today AAPL and AMZN.
