Payrolls and Paydays
Sept 1, 2023
–PCE Price data exactly as expected Thursday, PCE Prices yoy 3.3% and Core 4.2%. Employment report today with NFP expected 170k, UE rate 3.5% and Avg Hourly Earnings 4.4%. Speaking of wages, in a NomNomNomics effort to fight inflation, Biden is proposing a pay raise of 4.7% for federal employees. Actually, it’s 4.7% base pay raise plus 0.5% avg locality pay adjustment, totaling 5.2%.
“A 5.2% raise would be the biggest pay boost for feds since the Carter admin offered up 9.1% in 1980. Fed employees received a 4.6% raise at the start of 2023, and 2.7% in 2022.” This, while Social Security recipients are expected to get a boost of about 3% in ’24. Still want to buy those tens at 4.25%? Because the Federal Gov’t is BORROWING to give pay raises. Yes, it IS like your brother-in-law asking you to lend him some money for a vacation.
–Decent amount of upside continues to go through. Seller of 40k SFRM4 9500/9475ps (exit) vs buying SFRM5 9675/9725cs (new) paying 4.25. While the SFRM5 call spread is only 50 out of the money at present, it’s still 200 bps below the current FF rate. June’24 put spread settled 12.25 ref 9511.5, and there is still significant open interest in those strikes. June’25 cs settled 16.25 ref 9627.5.
SFRH4 9500/9600cs continues to trade as well. Paid 1 on Wednesday and 2 Thursday, settled 2.25 vs 9480.
–A couple of spreads to note: FFF4 settled 9458 and FFX4 settled 9558, exactly 100 higher. There are nearly 7 meetings over this period, the first is Jan 31, 2024, but the Nov meeting chews into FFX4 as it’s Nov 7 (just after the election). The only real takeaway here is that easing is expected in 2024, but it’s not being quite as aggressively priced as it was a few months ago.
–China continues to trickle out stimulus measures, which seems to have the odd outcome of boosting US equities.
10yr treasury / tip spread notched a recent low of 225 bps, down from >240 early in the month. Bulk of the year has been between 218 and 231. One might even be able to get away with calling this measure of inflation expectations “anchored” with a straight face.
–There was a buyer yesterday of 125k Dec Vix 25/32 call spreads somewhere around 45 to 50 cents. Dec VIX closed yesterday at 17.55. Nov closed 17.22 and Oct at 16.37, so the roll down isn’t extreme over the next month or so.
