Pause
May 22, 2023
–Debt ceiling talks continue.
–Powell on Friday: FED WAS EXPECTING FURTHER TIGHTENING UNTIL RECENTLY
@NickTimiraos Powell: “The risks of doing too much versus doing too little are becoming more balanced.”
–From MarketWatch
“Fed’s Kashkari says he’s open to a pause in rate hikes in June”. The tide appears to favor a pause at this point. Bullard speaks at 8:30 today, followed by Daly at 11:00.
–Seller of 50k SFRZ3 9675/9775cs Friday at 10. Settled 9.75 vs 9540. Roll down of short 9775 calls. There are still 266k open in SFRZ3 9550c which settled 45.0. Recall a large buyer >50k Z3 9550/9750cs in February; seems to have adjusted top strike lower over time but still holds longs in 9550s. SFRZ3 atm 9537.5 straddle settled 95.5. Vol subject to progress on debt ceiling.
–SFRM3/U3 settled new recent high -19.75 as expectations of ease are squeezed out of the Sept contract (settled 9504). In early March this spread was above zero (high of 6.0 with SFRU3 settling as low as 9430.5) but with the mid-March bank failures the spread plunged to a low tick of -47. Low settle has been -43, made on 4-May. Since SVB range has pretty much been -40 to -20, current -21. Market still expects easing into the end of the year, but the magnitude is lessening.
