Walking into recession
April 25, 2023
–SFRH4 9600 straddle settled 129.0 vs 126.25 on Friday. SFRZ3 9550^ settled 106.5 vs 103. Good early buying of SFRZ3 9700c, 19.5 paid for about 10k, delta 22 vs 9553.0 down to 51.5. Settled 19.75 vs 9552.5. After Friday’s 50k buy of SFRZ3 9600/9650/9700/9750 call condor, about 10-15k added yesterday; settled 5.25. PNT options’ TO notes, “Implied vols have grinded higher as Macro Funds have continued to unwind short vol positions.” On 4/19, the atm Z3 9537.5^ was 99.
–New recent low in SFRU3/U4 at -158.5 (9514.5/9673.0) down 4 on the day. The lowest settle for U3/U4, which is also the low for any one-year calendar in the cycle, has been -177, set in January. In my opinion, technical factors like rising vol, a more inverted front end, and an increase in open interest (SOFR +88k yesterday) suggest a move toward lower rates in the front end.
–In fundamental news, Dallas Fed Mfg -23.4 yesterday, essentially equaling the 2022 low of -23.7. Outside of Covid these are the lowest levels since early 2016. Philly Fed Mfg last week moved down to -31, the low since May 2020. “Every time this indicator was at or below current levels the US economy was either in or approaching a recession.” Yesterday a guest on Maria Bartiromo show noted that Leading Indicators have dropped every month for a year, also a harbinger for recession. From a WSJ article on Comm Real Estate: “Office building prices are down 25% since early 2022, estimates real-estate analytics firm Green Street. Prices of malls are down 19% since early 2022, and down 44% since 2016.”
–Today’s news includes Philly Fed non-mfg. New Home sales expected 632k. Consumer Confidence expected 104.0. Auction of $42b 2y notes. Still in the midst of the biggest week for earnings releases, GOOGL today.
