The Jackson Hole Arena
August 25, 2023
–Powell today at Jackson Hole, starts at 10:00 EST.
–SFRU3/SFRZ3 settled at +1.0 (9456.5/9455.5). Buyer of 40k SFRZ3/H4 at -16.5, settled -16 (9455.5/9471.5) the high in this particular spread since October. Calendar spread buyers have a ‘higher for longer’ bias with respect to Jackson Hole and Powell. That is, if the Fed maintains, Z3/H4 should roll to where U3/Z3 is now.
–Price action in general yesterday was slanted toward a hawkish Powell. SFRU4 was the weakest contract on the strip was down 10.5, but greens thru golds only -3 to -2. 2y yield +6.4 to 5.016% while tens rose 3.7 to 4.233%.
–FFX3 settled at a new low of 9454.5, down 2 on the day and the lowest level since early March. The intervening high in March (post SVB) was 9610.5. So that’s over 150 bp round trip…yet banks are still being negatively impacted by the inverted treasury curve with depositors lured by t-bills and a 2yr note yielding just over 5%. FFX3 at 5.455% is exactly 12.5 bps above the current Fed Effective of 5.33%, i.e. a 50/50 chance for a 25 bp hike at one of the next two meetings.
–Buyer of 100k SFRZ3 9475/9487.5cs mostly 1.25 and just above. Settled 9.0 and 7.75 vs 9455.5. Requires an ease to fill out. Perhaps more interesting, a buyer of 10k SFRZ3 9437.5/9500 c 1×3 for 2.5. The lower strike is currently in-the-money by 18. SFRZ3 9500c settled 7.0. Risk is another blow-up like March.
–Big outside reversal days in ESU and NQU, a rather negative development coming on the heels of NVDA’s blow-out earnings and guidance. SPX -1.3% and Nasdaq -1.9%.
–Saw a good Robt Frost quote yesterday: “Half the world is composed of people who have something to say and can’t, and the other half who have nothing to say and keep on saying it.”
With that as an introduction, Chamath Palihapitiya was amusingly skewered on X for this tweet:
“I’m in the arena trying stuff. Some will work, some won’t. But always learning. You’re anonymous and afraid of your own shadow. Enjoy the sidelines.”
A lot of “I’m in the arena trying stuff” memes yesterday. Well, I am back in the arena today after a short break…
