Keep an eye on Oil and Copper
March 14, 2024
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–Solid 30y auction at 2.375%. USM4 contract immediately popped from 120-07 to 120-20, but then slid back down to its starting point (120-08s). Ten year yield finished +3.4 on the day at 4.18%.
–A lot of Wednesday puts on TY expired worthless yesterday, but shorts are being replaced with TYJ puts (22-March expiry). TYM4 settled 110-30. Buyer of about 40k TYJ4 110.5/109.25 ps for 13 to 14 covered 110-31+ to 111-01. The put spread settled 15 ref 110-30. Put buying in TY has been pretty relentless for the past couple of weeks.
–A couple of large downside SOFR trades: SFRM4 9487.5/9475ps 5.5 paid 16k covered 9489, 25d. Settled 5.5 vs 9488.5s. Also new buyer of 50k SFRH5 9600/9550/9500 p fly for 10.5 to 11.0. I marked settles 58.5/32.25/16.75 so 10.75 vs 9578.0. Going into next week’s FOMC, April Fed Funds (FFJ4) are right on top of EFFR (5.33) at 9467.5. One year forward FFJ5 is 9577.5 or 4.225%, 110 bps lower. In general, the market appears comfortable with the idea of four rate cuts over a year.
–Worth noting strength in economically sensitive prices: CLK4 this morning is at a new high for the year at 79.91 (+0.61). Copper is also at a new high for this calendar year, with HGK4 printing 4.08 this morning. A few sessions ago on March 6 it was 3.83. Apparently inventories are quite low, as they are across a lot of economically sensitive materials. Nice jump in open interest on HG’s rally yesterday (thanks TD).
–Today’s news includes PPI expected +1.1 yoy from 0.9. Core 1.9% from 2.0. Retail Sales is the more important report, expected +0.8% m/m. Jobless Claims expected 218k.
