FOMC as Covid risks are touted
July 28, 2021
–The Fed has always cited Covid as a risk to its outlook, and just before today’s FOMC announcement the CDC has decided that most people look better in masks and that the efficacy of vaccines is suspect. Yesterday featured a flatter curve and lower rates as China’s tech crackdown spilled into US equities with Nasdaq closing down 1.2%. Tens ended at 1.234%, down 4.1. One notable new low set in EDZ1/EDH2 calendar at -2.0, down 0.5 on the day and the only inverted calendar on the ED strip.
–New buying of 30k 3EU1 9912.5/9937.5 call 1×2 for 2.0 (settled 3.0, 0.5 ref 9887.5). The lower strike is 29 bps out of the money. I suppose we would see fives sub-50 bps if EDU4 was to hit the lower strike; fives were auctioned yesterday at 0.71. Large exit of 50k 0EZ 9962/9950/9937p fly at 1.75. Settled there ref 9959.0. Also some new buying of EDU1 100c for just under 0.25 synthetically, 20k.
–No dot projections to interfere with Powell’s dovish message today. If prices associated with re-opening were the only drivers of elevated inflation, then surely renewed restrictions will tamp those same prices back down, right? Of course, consumer expectations of higher inflation appear to have taken hold and won’t be easy to shake. This risk to today’s press conference would seem to be that a consistently accommodative Powell acknowledges both a shift in expectations and upcoming increases in owner-occupied rents.
