Biden picks up a fiddle as Powell shuffles deck chairs
June 14, 2022
–At the 2:00pm CST settle, EDZ2 was 9609.5, down 29 on the day. Within another hour and a half it was printing 9588, down 50 on the day. I don’t think I have ever seen that sort of a post-settle move. This morning the contract prints 9591.0 and EDH3 has become the lowest priced contract on the strip at 9573, outpacing the former low-priced leader EDM3, which currently prints 9578. EDZ2 is consistent with a Fed Funds target of 3.75 to 4.0%, meaning another 300 bps over the next five FOMC meetings. The culprit for the late move was a report the Fed will hike by 75 tomorrow.
–ZeroHedge this morning leads off by highlighting a Morgan Stanley piece on Japan which features this quote: “we worry that the currency and Japanese financial markets are in the process of losing any sort of fundamental-based valuation anchor.” What is sadly amusing is that this quote could just as easily apply to financial markets across the world. Then of course, there was this comforting salve: *WHITE HOUSE WATCHING STOCK MARKET CLOSELY: JEAN-PIERRE. I’m almost surprised she didn’t add that staff was also anxiously monitoring NFT values.
–FFQ prints 9774.5 last, which is down 23 from settle. Current Fed Effective is 83 bps, and August, which captures the June (tomorrow) and July FOMCs, is 225.5 bps, a difference of 142.5 bps…nearly predicting 75 bps at each meeting. On the jolting adjustment in sentiment, the curve flattened. At settlement yesterday, the (new) red/gold pack spread, using Sept’23 and ’26 for the start of each pack, was -44.75. It’s actually around the same spot currently with reds higher on the morning as the upcoming recession is priced. EDU2/EDU3 calendar settled 99 bps yesterday and this morning EDU2 prints 9667, down 25 while EDU3 prints 9598, up 5, a plunge of 30 bps in the spread to 69. Implied vol has unsurprisingly exploded and is just shy of the covid surge.
–News today includes PPI expected 10.9 yoy with Core 8.6. This morning July WTI (CLN2) is over 121.50, $4/bbl higher than yesterday’s low and close to the high for the move.
