A second inflation wave?
April 11, 2024
***************
–CPI lived up to the hype, sparking huge market moves on a ‘hot’ print. CPI m/m 0.4 versus expected 0.3, yoy 3.5 vs 3.4 expected. Core 3.8 vs 3.7 expected. The largest net change across rate futures was SFRM5 which plunged 30 to 9544.5. Two year yield surged 21.5 to 4.96%, while the ten year rose 18.4 to 4.548% after a poorly received auction. SPX ended down 1%. CLM4 was +0.95 late at 85.41.
–New highs in near SOFR calendars as prospects for near-term easing were squashed. The most inverted one-year calendars are still the fronts but June’4/June’5 and U4/U5 are now almost equal. M4/M5 settled -72.5, up 18 on the day (9472/9544.5) and U4/U5 settled -73 up 9 (9487/9560). SFRJ4 (April) reflects no ease, settling at 9466.75. SFRZ4 ended at 9507, just 40 bps above April, about 1.5 eases priced into year end. Last Thursday this spread was -69. FFQ4 was 9492 on Tuesday, now 9479 so about 50/50 being priced for an ease by the July 31 FOMC.
–$/yen was near 153 at the end of the day and is now just above that level, which adds pressure on the Chinese yuan. Summers helpfully repeated that the next Fed move could be a hike.
–The administration’s impulse to hand out gifts to counter bad news is now being confronted by bond vigilantes, with the thirty year auction today (yield was 4.63% at futures settle). They will blame Powell, but perhaps now the Fed can just sit back and let tighter financial conditions tamp down on forward inflation.
–The block buyer of 75k SFRZ4 at 9532 on Tuesday was clearly caught wrong-footed. However, the buyer of 40k SFRU4 9462.5p for 2.25 gained 4.5 at settle (6.75s). The Monday buys of otm treasury puts also did nicely, for example, a buyer of 50k FVM4 102.5p for 1.5 to 2; late quote was 5 mid-mkt ref 105-08. Vol jumped with TYM4 vol marked at 6.8 from 6.0
–News today includes PPI, expected 0.3 m/m with yoy 2.2 from 1.6 last and Core 2.3 from 2.0 last. Jobless Claims expected 215k
