Stick to our knitting
January 11, 2023
–Powell declined to expand the Fed’s role in combatting climate change, and claimed that dual mandates of unemployment and price stability provided more than enough of a challenge. Oh, and throw social justice in there. NFIB small business optimism printed at 89.8, “…marking the 12th consecutive month below the 49 year average of 98.” Yesterday’s print is just above last year’s low of 89.5, and well below the covid spike plunge in 2020 to 90.9. What to conclude? That small business is more worried about ‘helpful’ government policies than about a massive pandemic threatening all of humanity? That couldn’t be it. There must be a glitch in the data.
–Yields jumped yesterday despite a solid three-year auction. The ten year rose 10 bps to 3.615% in front of today’s auction. CPI tomorrow.
–SFRH3/SFRH4 settled -98 bps (9511.5/9609.5), actually up 5 bps from Monday’s settle of -103. Three weeks until the next FOMC, and the consistent, official message is that of a terminal rate around 5% and NO subsequent easing. The market is consistently saying we’ll be at 4% or lower by next year. Must be a glitch in the data.
–Relentless selling of SFRZ3 9562.5^, yesterday mostly at 82 (10k), settled 81.5 vs 9562.0. Open interest in the call is now 52k and put is 83k. Before the end of the year, SFRZ3 9550^ was 100 bps. That now settled 81.75. Sales in this straddle appear to target 4.25 to 4.5% for year-end FFs, though vols were awfully high with the Fed dialing down future rate moves.
