Powell’s easy
November 2, 2023
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–Powell said the Fed is not thinking at all about cutting rates, and the question the Fed is asking is should we hike more. The market digested that, along with other comments, and concluded: FED PIVOT!! Rate and equity futures soared during the FOMC press conference. On the SOFR curve SFRH5 (red March) was the strongest contract, closing +15 at 9574.5 or 4.255%. The most inverted one-year calendar spread is SFRH4/SFRH5, which is now back below -100 bps at -106.5 (9468/9574.5). The most inverted three month calendar is SFRM4/U4 at -29 (9492/9521). So, while easing continues to be priced, the pace is not extreme.
–The prospects for a hike in December have essentially been squeezed out. FFX3 settled 9467.25, right at the 5.33% Fed Effective Rate. Jan’24 FF settled +2 at 9462.5 or 5.375%. April is 9464.5, and is the last contract with a rate above the current EFFR. If one were thinking an ease could happen at the Jan 31 and/or March 20 FOMC, then selling FFF4/FFJ4 is the vehicle. THIS IS NOT A RECOMMENDATION.
–ISM Mfg was expected 49.0 and actual print was 46.7. New Orders expected 49.8 and were actually 45.5. I guess it’s a ‘bad news is good news’ market again. About a week ago a friend whose son started a leather goods company ( https://www.rangeleather.com/ buy your stocking stuffers here!) said that sales in October had fallen way below projection. Just anecdotal evidence of a slowing consumer was my thought. But an article on ZH (citing BBG) confirms the same idea about California’s tax collections:
“As of Oct. 25, just $18 billion had been collected for the month – significantly lower than the $42 billion that had been projected, according to an update by the state’s Department of Finance late Friday. The shortfall is being attributed to the recent stock market slump and slowing wage growth, as the state’s collections are highly dependent on capital gains and personal income tax revenue”.
“…Nearly half of California’s tax collections come from residents in the top 1% of income earnings, Bloomberg further notes.”
Of course, to be fair, tax collections in Texas should probably be included by comparison; I’d guess they’re up.
–News today includes Jobless Claims expected 210k, Productivity and Unit Labor Costs, expected +0.7% fr0m 2.2 last.
