Bullard strikes again
February 17, 2023
–PPI was hotter than expected +0.7%, but Housing Starts were weak and Philly Fed at -24.3 was the lowest reading outside of the covid spike and GFC. The market absorbed this data, and easily digested early comments by Mester that 50 bp hikes are still on the table. However, late comments by Bullard, who is also yammering about the need for 50 bp hikes sent stocks into a tailspin in front of today’s large monthly option expiration. ESH was around 4135 when Bullard’s balloon was floated on the tapes, settled 4099.75 and as of this note is 4067. Stocks are closed for Monday’s Presidents Day holiday, (gee, do we still have that?) so adjustments related to puts vaulting into the money will need to be made today, and …it’s going to be sloppy.
–As yesterday, profit-taking on the front end continued, for example another 46k 0QM 9550p were sold (exited), yesterday at 21 covered 9579; on Wednesday it was the same size with a price of 24.5 covered 9573. This dynamic is also evident in 2/10 which rose another 4.4 bps to -77, having printed as low as -92 Wednesday morning. 2y yield -0.8 at 4.614% and 10y +3.6 bps to 3.843%. On the SOFR curve M3 was +1.5 to 9478, M4 was the strongest contract, settling +6.0 at 9585, M5 was -0.5 at 9658.5 and M6 -3.0 at 9675.0.
–Lukashenko says Belarus says ready to join war if his country is attacked by even one Ukrainian soldier. The Pentagon has a high-level official, Michael Chase, expecting to visit Taiwan in the next days. Geopolitical spark over the long weekend?
