Powell uncertain but rate vol drops and stocks pop
May 8, 2025
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–The theme of the FOMC press conference was uncertainty. The former thinking was that if the Fed waited too long to move, they’d be too late, behind the curve. Now the dependency is on actual hard data, not surveys or sentiment. Powell: “…well positioned to wait” “…no real cost to our waiting.”
–The SOFR strip responded by inverting further. SFRU5 was the weakest contract, settling -4.0 at 9612.5. SFRU6 was +1.0 (9688.5), U7 +2.0 (9673.5) and U8 +3.5 (9652.0). The peak contract moved back a slot to SFRZ6 at 9689.0. SFRM5/M6 one-yr calendar settled -106 (9576/9682), but U5/U6 closed at a new low -76. Z5/Z6 also a new low at -44.5. The red pack (2nd year forward) ended at 9686.25, which would would be compatible with a terminal FF target of 3.0-3.25%. Current is, of course, 4.25-4.5%.
–New buyer of 20k SFRU5 9612.5/9587.5/9562.5p fly for 6.5 (settled 7.0 vs 9612.5). Just as a comparison of downside ‘certainty’ vs upside ‘we have no idea where this might go’ the 9612.5/9637.5/9662.5 CALL fly settled 3.0, less than half the value of the put fly. Equidistant 9587.5p settled 6.75 vs 9637.5c 12.25.
–On Tuesday evening it was announced that US and China delegations would meet to discuss trade, which juiced equity index futures. I would anticipate a hardened stance from China, who yesterday emphasized that the US had requested the meeting.
–Powell mentioned that sentiment was bad during covid, but spending continued. Well of course it did, the gov’t was ladling out cash! Though ESM5 ended positive yesterday, it’s worth a mention that GOOGL fell 7.25% on news that searches utilizing GOOGL had declined on Apple devices. Market cap was erased by ~$150 billion. Astonishingly enough (to me anyway) a colleague mentioned that a friend searches for info on TicToc, and I guess now it’s all AI. NVDA ended up 3.1% on proclamations of relaxed chip rules, so I guess that offsets GOOGL. I suppose my concern would be the uncertainty of cash flows or ‘wealth creation’ from the entire tech sector, which could impact consumer activity. But it hasn’t yet.
