Forward easing expectations keep declining
September 18, 2023
–Friday saw yields push higher, with new contract lows in SFRM4 (9487), U4 (9518.5) Z4 (9552.0) and H5 (9580.5). Tens +3.6 bps to 4.322%. This would have been the IMM date for front Sept ED to settle to libor, so now SFRU4 is one year forward, and at 9518.5 it’s just a little more than 50 bps below the current Fed Effective rate of 5.33. Amazingly, this contract traded above 9700 during April and May, as financial stress post-SVB could have sparked Fed easing. But it didn’t. Perhaps there’s now more delineation between financial market stress and “the real economy”. Maybe. In any case, Soc Gen this morning is plunging (-9%) as its new CEO outlined his strategic vision which features little to no growth in the short term.
The Soc Gen chart looks a bit like Sisyphus slowing rolling the rock up the hill going into early March, followed by a plunge, and a steady ascent again since then, followed by today’s dive.
–This week brings TIC flows today, Housing Starts and the 20y auction Tuesday, and the Fed meeting Wednesday. The Fed is expected to hold rates steady, but forward guidance and growth estimates will be key. In a contrast with the eurozone, the US growth estimate in the SEP for 2024 almost certainly will be notched higher from +1.1% which was June’s forecast.
–Large buyer of SFRZ3/H4 Friday -11 to -10.5 led to a new high settle of -10 (9455/9465). Open interest fell less than 10k in both contracts.
