Relief Rally
November 25, 2024
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–Bounce in treasuries and EUR being attributed to Bessent’s choice as Treasury Sec’y. Stock futures powering higher, precious metals under selling pressure. This shortened week features auctions of 2, 5 and 7 year notes, with 2’s today. Chgo Fed National Activity expected -0.15; Dallas Fed Mfg as well this morning. WTI slightly lower, but CLF5 still near $71/bbl. It’s been between 67 and 72 for the last 6 weeks.
–Curve flattened Friday. 2/10 closed at +4 bps, down 4.6 bps on the day and threatening to invert again. Weakest contract was SFRU5 down 3.5, but SFRU6 was +0.5 and SFRU7 +2.0. FFZ4 settled 9547.5, unchanged on the day, around 50/50 for cut or hold on Dec 18. (EFFR is 4.58. On 25 bp cut FFZ4 should settle 9452.5. 18 days at 4.58 and 13 days at 4.33). The Jan/Feb FF calendar gives an indication of odds for a cut at the Jan 29 FOMC. FFF5 9555.5s and FFG5 9560.5s, so spread of -5 bps. Not exactly 20% odds, but that’s close enough. So, although the market is now accepting that the Fed may remain a bit more restrictive than previously thought, there were still some disaster insurance plays…for example a new buyer of 35k SFRZ4 9662.5c for 0.25; strike is 110 bps away. I’m sure the buyer hopes they never play, because the implication is that hypersonic missiles will be flying around like a game of Galaga.
–FOMC minutes tomorrow afternoon. PCE prices on Wednesday.
