Communications
February 1, 2022
–Bostic clarified that a 50 bp hike was not his preferred policy path (then why even bring it up?) noting that he sees three hikes in 2022. There were several large block buys in EDH2 and EDM2 at 9946/47 and 9905.5/07; settled 9949.0 and 9909.5. EDM2 and EDU2 were the only contracts that settled negative on the day, both -1.5, until the last golds. Perhaps unsurprisingly, Bostic’s weekend comments appeared to provide the ideal opportunity for large shorts to be covered: open interest in EDM2 fell 71k, and in EDZ2 by 41k with total ED open interest down 199k. I guess that was all part of the “Fed listens” initiative a couple of years ago, the Fed listens to Bill Ackman.
–Higher than expected inflation data in Germany caused a rout in euribor, with ERM3 and ERU3 the weakest contracts on the strip at -9.5. Schatz (2yr) went from -60.6 tp -52.8 as yoy CPI was 4.9% vs expected 4.4%. Short end curves are following the same playbook, with concerns about front-loaded tightening that will stifle future growth. For example, yesterday ERH2/ERH3 was up 7.5 to a new high at 52.5, while on the back part of the curve ERH4/ERH5 declined from 12 to 8.5. In sonia, SFIH2/H3 is at a new high 85.5, while SFIH4/H5 is negative at -17.0. Inversion on the back end of rate curves is a warning on growth. In the US, EDH2/H3 is 110 bps, while EDH4/H5 is 3.0. Indeed some analysts are forecasting sharp slowdowns.
–The President’s Press Sec’y Jen Psaki yesterday set the market up for a weak payroll number, noting that the survey week coincided with the worst of the omicron variant, and that 9 million people called in sick. The employment report is Friday. Nothing like massaging the data before it even comes out.
