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.
