Pressing into NFP
September 5, 2024
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–Impressive strength in short-end rate contracts as JOLTs continues to make new lows. From a high in job openings of 12182k in March 2022, it’s now 7673k. For the sake of comparison, pre-covid high in late 2018 was 7594k. SFRM5 was the strongest contract on the strip, settling +16 at 9674.0. Highest settle in this particular contract since Jan 12 at 9681.5.
–A lot of recent extremes posted on Wednesday, somewhat surprising in front of NFP tomorrow:
New low SFRU4/Z4 -74.25 (9513.25/9587.5) Post-election the Fed’s axe is going to swing?
New low SFRU4/U5 -177.75 (9513.25/9691) Nearing the low of any 1-yr calendar which I believe was -192
New high settle SFRM5…strongest contract on the strip +16 at 9674. Yield of 3.26 is 200 bps below the low end of current FF target 5.25%
New high SFRM6 9706… pressing thru 3% and highest in this slot since the regional banking crisis in Q2 2022. SFRM6 is currently the PEAK contract on the SOFR strip.
New high 2/10 just above zero, highest since July 2022. (3.766/3.767)
New high 5/30 50 bps, highest since March 2022…(which is when the hiking cycle started)
New low 10yr breakeven (treasury – tip) at 206.6 bps.
–There was quite a bit of trade in week-1 (expiring tomorrow) TY puts. TYZ4 settled 114-18, I think BBG might be making a big deal out of a buy of 50k wk1 112.5p bought for 1. It was a cover, as OI fell 48k. 113.25p settled 2, OI rose 12k on 30k of volume. Closer to the money, 114p settled 13, traded 42k and OI was up 13k. The 114 strike is somewhere around 8 bps otm. Not nearly as much call volume. Wk-1 115c settled 15, traded 26k and OI rose 12k. A price of 28 for a 1-point 114/115 strangle is pretty juicy, but for now we’ll just chalk it up to uncertainty.
–News today includes ADP expected 145k, Job Claims 230k, S&P Global PMI Comp 53.9 vs 54.1. ISM Services 51.4 from 51.4
As a follow-up to yesterday, Cap Goods Orders nondef ex-air was -0.1 and Shipments were -0.3…continued weakness
–Are they stopping us?
I think a price of 9674 in SFRM5 is sort of crazy. But I felt the same way 10 to 15 bps lower. There was a new buyer of 10k SFRM5 9700c for 33.5. This is when a pure trading mentality takes over…the fundamentals are nebulous. The only question is, are there sellers stopping the buyers. We’re not thinking about the actual PRICE, just whether or not it goes up from here.
https://x.com/concodanomics/status/1831384368407023933
