Powell at Jackson Hole
August 23, 2024
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–Yields rose with tens up 8.4 bps to 3.86%. In yesterday’s note, I mentioned that SFRH5 and M5 were the stars, both rallying 10 bps on Wednesday. Those moves were reversed yesterday: H5 fell 10.5 to 9620.5 and M5 -11 at 9650. Positioning is predicated on Powell’s Jackson Hole comments, which occur today at 10:00. A link to the KC Fed is below, for viewing of Powell’s speech.
–KC Fed President Schmid, in an interview yesterday with Steve Liesman, noted that the labor market is still relatively strong and there’s “more work” to do with respect to inflation. Clearly there are a range of views within the Fed. Yesterday FFV4 settled 9498, edging closer to 9492 or 5.08%, which would be the new target on an ease of 25. Having said that, there is still large buying of SFRU4 call spreads — just in case the Fed cuts 50. For example, SFRU4 9531.25/9543.75cs 0.5 paid for about 100k. This trade requires high odds of 50 bp cuts both in Sept and Nov. The high print on August 5 in SFRU4 was 9547.5, though the settle that day (high sett of the month) was 9528.5.
–It’s three and a half weeks until the Sept 18 FOMC. A lot can happen, no matter what Powell says, though I expect him to lean towards 25 bps. If he goes a step further and implies that future eases of 50 are unlikely, I suspect that stocks will have a negative reaction. Sept treasury options expire today. TYU4 settled 113-09+. Peak OI in calls is still the 112 strike with 125k, the 112p settled cab so it’s all intrinsic. Next highest is 113.5c with 60k open. Settled 7. I suspect we’ll pin that strike. Put open interest is pretty sparse.
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https://www.youtube.com/KansasCityFed
