Bullard and SFRM3 on the same page
February 23, 2023
–News today includes Q4 GDP revision, still expected 2.9%. Jobless Claims expected to poke back over 200k. 7y auction. The Fed’s preferred measure of inflation, PCE Core Prices, is out tomorrow, expected 4.3% yoy from 4.4% last. Headline number expected 5.0, same as last.
–Vol eased yesterday as rate futures stabilized. However, this morning TYH is pegged at the 111-00 strike, essentially at the low of the move. On Feb 2, TYH3 settled 115-17+. In the 13 sessions since then, nine have been lower closes. Nothing really new in the minutes; we already knew that a couple of members favored 50. The messaging since the last meeting has generally been consistent, focusing on a need for continued restraint. This excerpt on financial stability is somewhat interesting:
In their discussion of issues related to financial stability, several participants discussed vulnerabilities in the financial system associated with higher interest rates, including the elevated valuations for some categories of assets, particularly in the CRE sector; the susceptibility of some nonbank financial institutions to runs; and the effect of large, unrealized losses on some banks’ securities portfolios.
It’s not a loss until you sell, right?
–FFJ3 settled at a new recent low 9511.5 (9517 should be approx settle if Fed only does 25 at the March 22 FOMC). Lowest contract on the FF curve is August at 9462 or 5.38%; Bullard was on CNBC yesterday and said he favored 5 3/8% target, so the market is in sync. June SOFR regained the lowest slot on the curve at 9464, with Sept at 9464.5. CLJ3 closed near the low of the year at 73.95 as API data showed a 9.9 million barrel inventory increase, more than expected. Somewhat of a red flag for the “no landing” proponents.
