Powell greenlights risk
February 2, 2023
–A friend deemed yesterday as a “tactical error” by Powell, which would create a rally in risk and housing, thereby encouraging the same conditions that helped spark inflationary impulses in the first place. The gold market likes it, with GCJ at new recent highs of 1971, up $28/oz. Powell sees disinflation in goods…making clear progress. Stocks surged. On Tuesday, Timiraos noted that Fed staff had elevated concerns regarding the persistence of inflation; yesterday Powell seemed to ignore that message. If you wanted to tempt the fate of backsliding, you accomplished it.
–Five yr yield plunged 14.7 bps to 3.493%, tens down 13.6 to 3.393%. On the SOFR curve, reds (2nd yr forward) were up 15.625 to an avg price 9673.375, and greens up 15.625 to 9728.375. April FF only up 0.5 to 9521.5, indicating expectations of another 25 bp hike in March (Current EFFR is 458, another 25 would be 483 or 9517). SPX up over 1%, Nasdaq Comp +2.0%, new low in the dollar index.
–Massive buying of SFRZ3 call spreads contrubuted to an increase in open interest of that contract of 43k. Settled 9568, +9.5.
Buyer (pre-meeting) of 90k SFRZ3 9550/9750cs 33 to 35. Settled 40 (43.25/3.25) with net 52 delta vs 9568. OI in the strikes +71k and +61k. The 9575/9775cs also bought 25 to 25.5, settled 29.25 (31.5/2.25) net 43 delta. OI +22.5k and +26k.
–ECB and BOE today. US employment report Friday has likely become less significant.
On Tuesday I marked the Wednesday expiration atm straddles: TY 114.5^ was 36 and US 130^ was 62. The market blew through upper breakevens of 115-02 (115-15+s) and 130-31 (131-21s).
Late markets for Friday’s expiry:
TYH2 115-13
Friday 115.5^ 0’48/0’50
USH3 131-14
Friday 131.5^ 1’23/1’26
