PCE prices today to set tone for FOMC next week
January 27, 2023
–Today’s news includes the Fed’s preferred measure of inflation, PCE prices. M/M expected 0.0 with Core +0.3%. YOY expected 5.0% from 5.5% with Core 4.4% from 4.7%. FOMC is Wednesday.
–Yesterday’s economic data generally good, with Jobless Claims surprisingly low at 186k. Advance Q4 GDP 2.9%. The last Atlanta Fed Q4 GDP estimate was 3.5%, so the official reading will likely be revised slightly higher over time. Another solid auction cycle wrapped up with the 7y. The ten year yield rose 3.5 bps to 3.489%.
–Large buy SFRJ 9525/9537.5cs for 2…. 45k. Settled 2 ref SFRM3 9511.5, open interest in the two strikes changed +22k and +10k. 0QM3 9550p more bought…4 paid 20k on block ref SFRM4 9658.5, which is right where it settled. Earlier in the week, 5 was paid ref 9660.5, so vol has declined significantly. OI in the strike is now 197k (+26.7k), the most of any midcurve put in SOFR. Curve suggests a tailwind due to roll-down, with SFRH4 futures at 9612.5 and SFRZ3 9562.0. 0QH3 9550p (short March midcurve on SFRH4) settled 2.0, so roll isn’t quite offsetting the passage of time. There is a lot of ease priced into the curve; SFRM3/M4 is -147 (9511.5/9658.5). How forceful will Powell be next week in terms of hammering home the NO EASE message? As financial conditions ease, Powell could use this opportunity to reinforce the succinct theme from Jackson Hole: the Fed will stay tight until the job is done.
–Nasdaq 100 closed just above the 200 DMA while Nasdaq Comp closed right at that level. Somewhat interesting as all the big stocks, AAPL, GOOGL, AMZN, MSFT, META TSLA, are well below 200 DMAs. CLH3 currently 82.01, up an even dollar; this has been a pivotal level since last September, and a close above 82 would suggest follow-through strength.
–Japan Core CPI 4.3% with 10y JGB nearing the 50 bp cap again. There’s a lot of press about Adani Group companies in India getting crushed due to a report from Hindenburg alleging fraud. Not sure of a spillover effect, but it comes right after reports of India’s population overtaking China’s.
