Oct 17. FOMC minutes today
-US rate futures are grudgingly giving away gains inspired by last week’s stock market sell off, and implied vol is being crushed. On last week’s market turmoil the blue midcurve atm 9675^ traded 24 (3EZ1). Yesterday it settled 19.5 and the one-month forward January 9675^ was sold at 24.5. Last week TYZ 118 straddle was 1’28 ref 117-29+. Yesterday it settled 1’04 vs 118-07. Large declines without much change in the underlying environment.
–I’ve never watched JOLTS data but job openings are exploding according to yesterday’s data at 7.136m, which is a 15% surge from last year’s high of 6.229m, which was, at the time, a record for this century. Can wage inflation remain subdued?
–A report from S&P on China’s local gov’t off-balance sheet debts is getting press. “S&P Global Ratings believes the amount of debt that local gov’ts keep off their balance sheets may be multiples of the publicly disclosed amount”…”That’s a debt iceberg with titanic credit risks.” Of course, China’s stocks are hovering near new lows after a 28% decline from the high already this year, and the yuan is ever closer to 7 (6.92), so I’m not sure if another kick will prod this particular horse. By the way, US debt levels are also ‘titanic’.
–Attached chart shows that the last two hikes from the Fed caused only 11 bps increase in libor. Since the Sept FOMC libor is up another 5 bps, but pressure on near contracts could indicate the possibility of catch-up. Large seller yesterday of EDZ8 9725p at 1.75 which was an exit. I wouldn’t feel particularly comfortable as an outright short in that strike.
–Housing Starts, Brainard comments and FOMC minutes today.
