Screaming recession
August 14, 2024
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–CPI today expected 0.2 with Core also +0.2 m/m. On a yoy basis, expected 3.0 from 3.0 with Core 3.2% from 3.3%. Lower than expected prints in yesterday’s PPI, yoy 2.2% and Core 2.3%, helped spark a rally in rate futures. SFRH5 and M5 led the charge, settling +10 at 9630.5 and +10.5 at 96.61. SFRM5 at 3.39% is nearly 200 bps below the current FF target midpoint of 5.375%. By NEXT SUMMER. While stocks welcome the prospect of lower rates, it’s hard to see the Fed slashing 200 in a “soft landing” scenario. Something is not right. Rate futures are screaming recession, while stocks enjoyed a rollicking rally with Nasdaq +2.4%.
–Tens fell 5.5 bps to 3.852%.
–Block steepener in SOFR yesterday in size 37k, SFRH5 9626 vs H6 9690, a spread of -64. On Monday the spread settled -64.5 and yesterday at -62.0. Trade was new, open interest jumped 54k and 46k. Concentrated buying in 2025 contracts also responsible for new low in SFRU4/U5 1-yr calendar at -162.5 (9515.5/9678.0), down 7 on the day.
–A few option curve trades reflected the trend: 0QZ/3QZ 9700/9750cs spread 2 paid for red, 2k, (underlying contracts Z5 at 9687.5 and Z7 at 9682.5).
SFRM5 9675/9725cs vs 2QM 9712.5/9762.5cs -0.25 credit to buy the near, 5k
