Labor mandate
May 14, 2024
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–Looks like Roaring Kitty has gotten involved in the copper market; HGN4 is 4.83 this morning, which is up about 25% since March. Of course GME was up 74% yesterday alone.
–NFIB Small Business Optimism today, was in the dirt last time at 85.5, now expected 85.2. Indeed, the job search/placement company is laying off 1000, or 8% of the workforce. What else do you need to know? Fed switching to the labor side of the dual mandate? Indeed.
–PPI expected 0.3 from 0.2 with Core 0.2 from 0.2. Yoy expected 2.2 from 2.1 with Core 2.3 from 2.4. The NY Fed releases its Household Debt and Credit report at 11:00am. The headlines will blare NEW ALL-TIME HIGHS in credit card debt (it was $1.338T in the last Consumer Credit report to end Q1). This report includes data on delinquencies, which are also marching higher.
–Yields fell slightly yesterday, with tens down 2.3 to 4.48%. On the SOFR strip reds through golds +1 to +3. 2/10 treasury spread at a slight new low -37.4. Late Friday there were large purchases of July FV and TY puts that were 50+ bps otm. Yesterday there was a little more of that sort of trade. However, I am just highlighting a few upside plays: +40k 2QM4 9650/9656.25 c spd for 0.625. It doesn’t look that way on the Open Interest sheets, looks more like 20k. In any case, this is an add or roll down as there were already about 60k 2QM 9656.25/9662.5cs recently bought. Settles: 9650c 2.5, 9656c 2.0, 9662c 1.5. Underlying SFRM6 settled 9598.5, so this trade targets 50-60 bps of upside with about 1 month until expiry. Interestingly, there was also a much longer dated play on the long end of the maturity spectrum: December TLT 102c were blocked 75k yesterday, said to be a buyer, not sure of price but around 1.07. The last time TLT was 102 the long bond yield was around 3.90%, so this is another 60-70 bp otm trade. Finally, an add of +14k SFRZ4 9600/9700cs for 5.5. Settled 5.25 ref 9509.5.
–Evidence of a consumer-led slowdown appears to be piling up. No matter how much gov’t supported funding there is for AI data centers (which likely displaces workers) the core of the economy is cooling. The administration’s response necessarily is to buy votes. The Fed might lean against more gov’t spending gimmicks, but I wouldn’t count out an ease next month (which obviously is NOT being priced, FFN4 settled 9469 or 5.31 vs current EFFR of 5.33).
