It’s About Jobs

July 18, 2024
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–Rates eased a bit in a quiet session, with tens -2.5 bps to 4.142%.  SPX fell 1.4% and NazComp fell twice as much, -2.77%.  Waller spoke yesterday; he’s an important voice on the Fed, and while speeches earlier in the year were ‘What’s the Rush’ and ‘There’s Still No Rush’, this one was ‘Getting Closer’ [with respect to cutting the FF target].  He ended his speech with three scenarios: 1) continued good readings on inflation. 2) uneven inflation data, which is more likely but leads to less certainty of a near term ease 3) resurgent inflation data.  Before concluding with these scenarios, he had deemed the labor market to be in a ‘sweet spot’, but is quite cognizant that what had been a tight jobs market “has changed dramatically.”  I would consider a fourth scenario: uneven price data but notable deterioration in labor.  Would that forestall a near-term ease?  

–In any case, action in the short end of the curve revealed a modicum of bias in terms of pricing a greater magnitude of ease, pushed slightly further back.  SFRU4 settled down 1 at 9495, but contracts from Dec’25 forward were +3 to +3.5.  Yesterday I noted that the pre-election, post-election calendar spread of SFRU4/SFRH5 closed at a new low of -79.5 (9495/9574.5).  Fairly aggressive to price 3 eases in a six month spread.  SFRU4/U5 also closed at new low -131 (9495/9626).   Obviously these spreads aren’t always ‘right’, for example the near 6-month calendar in January was -80 to -90.  But….No Ease. 

–Today’s news includes Jobless Claims expected 225-230k (what happens on >250k) and Philly Fed expected 2.9 from 1.3.   

Posted on July 18, 2024 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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