Might be the most awesome mustache ever
April 14, 2023
–PPI much lower than expected -0.5 m/m and 2.7% y/y. However, rate futures were quiet; expectations of future Fed activity saw little change in terms of price. Ten year yield was +3.3 to 3.452%. SOFR contracts unch to -5 out to blues. Treasury vol continues to ease. Not much news out over the next week. Philly Fed on Thursday. April SOFR options expire today.
–Retail sales today expected -0.4%. Credit and debit card usage has apparently been sliding. Goolsbee appearing on Squawkbox, followed by Waller speaking on the economy. Bank earnings released post-close: JPM, C, PNC, WFC.
–Consider the settle in FFQ3 at 9513.0. EFFR has been 4.83, and April FFs are right there, settling at 9517.25. So with FFQ3 9513, one could say that nothing is expected out of the Fed for the next three FOMC meetings which occur May 3, June 14, July 26. However, there are healthy odds of a 25 bp hike occurring in May or June, as FFM3 settled 9499.5 or 5.005%. The hike, then ease, scenario is rather tightly compressed. FFF4 settled 9567.5, a yield 50 bps lower than the current EFFR. No matter what Fed officials say, the market is convinced that easing begins at some time this year.
–Given the near term uncertainty, condors to peg the SFRM3 settle when options expire on 16-June are relatively cheap. Buyers yesterday:
40k SFRM3 95.125/95.0625/95.00/94.9375 put condor at 1.0 (settle 1.0 ref 9607)
60k SFRM3 95.1875/95.125/95.0625/95.00 put condor at 0.75 (settle 0.5)
So that leaves 9518.75/9512.5/9500.0/9493.75 condor settling at 1.25, with a max gain of 5.0 (6.25 less 1.25 paid) between 9512.5 and 9500. The June FOMC is 2 days prior to option expiry
