PAYROLLS!
December 8, 2023
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–Now it all boils down to the payrolls number. For a long time the employment data faded in importance, now it’s back to its rightful place up there with the orange juice crop report.
Wait a second, is that Kent Dorfman (Flounder) on the left side of the screen? Never noticed that before. It’s ALREADY been a good day.
–In any case, NFP expected 180k but I think whispers are skewed lower. Unemployment rate 3.9%, same as last, though I think we’ll see a 4 handle. However, long end yields have already plunged in anticipation, and we have supply coming at the start of next week.
–Yesterday the curve bounced slightly from Wednesday’s flattener. 2y down 2.3 to 4.578% and tens +0.8 to 4.129%. The ten year tip ‘real rate’ has been holding just under 2%, down just over 50 bps from the high in October.
–PNT Options sparked large buying in SFRH4 9475/9487.5/9500c fly from 0.75 to 1.25 yesterday as TO pointed out that market maker inventory made it cheap (settled 1.25 ref 9489.5). However, this is more of a market-maker type trade. Max value at expiry is 12.5 exactly at middle strike and there are 98 days left. To give a little sense of uncertainty, SFRH4 9600c have been trading and settled 4.0 yesterday (300k open). So, someone’s paying 4 for something 110 away from the money but the fly buyers think SFRH4 can just sit for three months? (By the way YZ, Jan 9600c settled 0.5 and Feb at 2.25). Even next Friday’s SFRZ3 9500c traded 0.25 5k and those are 32 out.
–Recall a lot of the initial covid inflation spark was related to used car buying and crazy prices. From Manheim yesterday:
Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) decreased 2.1% in November from October. The Manheim Used Vehicle Value Index (MUVVI) dropped to 205.0, down 5.8% from a year ago.
So I guess deflation in used cars will lead to overall deflation, right??
–Household Net Worth showed a rare decline yesterday even as Federal Gov’t Debt exploded at a growth rate of 10.6% in Q3, following a 12.7% rate in Q2. Declining marginal utility of a dollar foolishly borrowed and spent by government?
–Overshadowing the macro picture is the BOJ which is looking for a gentle way to extract policy from super-easy. $/yen yesterday plunged briefly below 142, though now 144.60. It printed as high as 151.90 in November. “Idiot. Get back in there at once and sell, SELL.”
