Temporary bottlenecks are everywhere

April 30, 2021

–After early morning weakness on Thursday, rate futures ended little changed going into month end.  Ten year yield up slightly at 1.638%.  Implied vol was offered throughout the day, without any noticeable reach for puts, even as futures made new lows early.  Today Personal Income and Spending are released, with the Fed’s preferred inflation measure, PCE Core, expected +1.8% yoy.  New high this morning for palladium, with the June contract testing $3000/oz.  

–Here are a couple of news snippets, all of which suggest firmer consumer prices.  Reuters: A Bundesbank economist says chip supply bottlenecks will lead to a weaker Q2 recovery.  The same dynamic was mentioned in Ford’s earnings report, which caused the stock to plunge over 9%.  FT notes that the price of cobalt, used in electric vehicle batteries, has jumped [though it’s still only about half the price of the 2018 peak].   However, as I scanned stories about cobalt, I saw a chart showing that lithium carbonate prices started the year around 40000 yuan per tonne and are now 90000 yuan per tonne. BBG says that La Nina and associated drought is affecting crops.  The Washington Post notes that we’re in the midst of a chicken shortage. Wingstop CEO: “Suppliers are struggling, just as many in our industry are, to hire people to process chicken, thus placing unexpected pressure on the amount of birds that can be processed…”  I don’t know that I’ve seen the word “bottleneck” used as frequently as it currently is. 

–The Wall St Journal has a headline asking “Is the student loan program facing a $500 billion hole?”  No news there in my opinion.  Student loans are one of the federal govt’s biggest assets, likely destined for the official “write-off” column.  But what difference does it make?  Stephanie Kelton reminds us that the budget of the Federal Govt is nothing like a household budget, the administration can easily service another half trillion on the deficit, given low rates.  And that’s where you come in, Jerome…

Posted on April 30, 2021 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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