Payrolls and toilet paper
February 2, 2024
*******************
–All I can say is I’m glad I have the Peloton / Novo Nordisk (Ozempic) spread on. If it takes effort, bad. If it’s a simple pill, good. I guess the Shanghai Comp (new lows) vs META is another appropriate spread. META blew away expectations and is up 16% pre-open. China’s stimulus measures have flopped with new lows in SHCOMP.
–SOFR curve flattened hard; a contributing factor was stronger than expected Mfg ISM at 49.1, and Prices Paid at 52.9. SFRH4 settled 9489, -2.5, H5 9649.5, +3.5 and H6 9686.5, +8.0. The highest settle on the SOFR strip is Dec’25 at 9687 or 3.13%. Near one-year calendars printed new lows on the day. SFRH4/H5 printed -165 and settled -160.5 and SFRM4/M5 settled at a new low -132.5 (9538/9670.5). Continued worries about bank contagion saw KRE regional bank ETF close -3.1%. While odds for the March FOMC have clearly shifted toward HOLD, SFRH4 out-of-the-money calls are crazily bid. SFRH4 settled 9489, but calls 111 away, the 9600 strike, settled 1.25 (and were bid there), and 9700c were 0.25/0.75 and settled 0.5 with 42 dte. There are 7.6 million open interest SFRH4 calls, so an insurance bid to cap risk is understandable, but this is like toilet paper during covid.
–Ten-year yield was 3.86%, down 13.5 bps at futures settle. SFRZ4 settled 9619 or 3.81%. Perhaps the curve can move to positive carry by the end of the year…
–Payrolls today expected 185k from 216k last. Unemployment rate to 3.8% from 3.7%, Avg Hourly Earnings 4.1%. Powell will be on 60 Minutes this weekend to hone the Fed’s message.
