A little TOO smart
September 23, 2024
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–Friday featured continued strength in front-end contracts with SFRZ4 at a new high settle 9603.5. (86 bps premium to the new EFFR of 4.83%) Peak contract on the SOFR curve has moved forward to SFRZ5 at 9710.5; Z4/Z5 spread settled -107. There was a late block buy of 10k SFRZ4 9600/9575p 1×2 for 7.5 (appears new) which serves to highlight skew. The put 1×2 settled 12.25 and 2.5 so 7.25 ref 9603.5. Same otm on the call side? Z4 9606.25/9631.25 c 1×2 settled 13.0 and 6.25 so just 0.5. The equally otm 9575p 2.5s and 9631.25c 6.25s. The call with the same 2.5 settle as the 9575p is way up at 9675! The risk-aversion with respect to otm call sales is amazing….but not to anyone that got caught in the Q2 2023 regional bank crisis.
–Note that if there were certainty of 50 bp Fed cuts at the 7-Nov, 18-Dec and 29-Jan FOMC meetings, then SFRZ4 should target 9642 to 9644. (Below is a link on the CME site for SOFR calculations, thanks TD).
–EuroZone PMI weaker than expected today at 48.9 vs 50.5 estimate. China continues to take measures to support the economy, yet China’s 10-yr yield is sinking to new lows, currently just above 2%.
–A couple of interesting snippets this morning. From WSJ: Electronic Warfare Spooks Airlines, Pilots and Air Safety Officials. From BBG: The US Commerce Department is planning to reveal proposed rules that would ban Chinese- and Russian-made hardware and software for vehicles as soon as today, according to people familiar with the matter.
After the 9/11 attack, the CME (and other office buildings in major cities) erected concrete and/or steel barriers around building perimeters to deter auto bombs. It was a somewhat expensive safety measure. After the hacking of pagers and other technology in Lebanon, it’s not much of a stretch to imagine vulnerabilities in all sorts of new “smart” gadgets. In a way, there should be acceleration towards ‘on-shoring’ ; new security measures could ultimately be inflationary. I don’t think it’s hyperbole to think that cyber-security on this scale is comparable to Y2K remediation.
[We’re bringing back the muscle car. No computers, just metal and gasoline]
–Headline on ZH: ‘The biggest wild card in the Presidential Election’ : Just days left until a crippling port strike paralyzes the east coast.
I don’t really perceive this as much of a wild card. The administration is likely to just pay the demands to put the problem to bed at the last minute.
–Powell speaks on Thursday. Today we get comments from Bostic, Goolsbee and Kashkari. S&P PMI numbers this morning. 2, 5 and 7 year auctions begin tomorrow.
