Puking camel
November 12, 2021
–Light volume on yesterday’s holiday trade, but pressure on red eurodollars continues. EDU3 (the last red or 8th quarterly) settled 9876.5 on 5-Nov, one week ago. Yesterday the contract was 9844.5 or 32 lower. Technical formation is, of course, the famous puking camel. Early in the session there was an exit buy of 15k 0EM 9800p for 11, settled 11.75 vs EDM3 9861.5; this was the weakest contract on the board, settling down 8 yesterday. All near one-year calendars settled at new highs. The peak is EDM2/EDM3 which closed 92 bps, up 3.5 on the day. FFF’22/FFF’23 (January one-year Fed Fund spread) settled 64.0, up 5.5 on the day (got it right this time Harish!) indicating 2.5 hikes over the coming year. Of course, market pricing may not be indicative of actual Fed moves, but the market is clearly pushing for rate hikes to quell inflationary pressures. And the pricing for those moves is flattening the back end. Greens to blues (3rd to 4th year forward spread) is only 10 bps and blues to golds (4th to 5th) is only 8.375.
Whites -3.125, reds -7.375, greens -5.125, blues -3.5 and golds -3.5.
–The dollar index is continuing to rebound to new highs for the year, though it’s not even halfway back from the pandemic 2020 high to the low at the start of this year. Gold is also having a moment, with GCZ having rallied $100 to yesterday’s 1864 since the low of last week.
–Today brings JOLTS and Michigan Sentiment numbers. Consumer sentiment is perhaps unsurprisingly weak, as the cost of living outpaces wage gains. 71.7 last, and it’s expected to be around that level. 5-10 year inflation expectations were 2.9% last…I’ll take the ‘over’ on this one. William’s speaks, but the voice of the NY Fed has become muffled in this cycle.
