Some of our clients are speculating…
August 19, 2022
–One of BBG’s lead-off stories today is ‘US Futures Slide as Global Rate-Hike Wagers Surge’. Hey wait a second…Turkey just EASED rates. Bloomberg: trying to authoritatively find a reason for every wiggle when some moves are simply driven by positioning.
–Yesterday’s curve was a bit steeper, reds +3.5 while blues and golds were nearly unch’d. Ten-year yield fell 1.6 to 2.877%. As I was looking through yesterday’s settles I noticed that FFF3, which prices Fed Effective (EFFR) for year end 2022, closed 9648.5 or 3.515%. FFQ3 (August) captures the first five meetings of next year. It settled at almost the exact same price as January, 9648. Current EFFR is 233. The market thinks the Fed will be done by the end of this year, or at least that’s what FFF3/Q3 spread suggests. Looking for hikes next year? Buy FFF3, sell FFQ3. Think they’ll pivot to ease? Sell FFF3, buy FFQ3.
Randolph Duke : Good, William! Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them.
Mortimer Duke : Tell him the good part.
–After Wednesday’s minutes, the market again tilted toward pricing a 50 bp hike at the Sept FOMC. Then of course, Bullard said he’s open to 75. As motivational speaker Matt Foley would say, “Jim, I wish you could just shut your big YAPPER.” SFRU2 was trading 9691.5 just prior to Bullard, then ticked down to 88.5 and settled 89.5. Same with October FF, from 9708.5 to 05.5, and settled 06.5. As a reminder, 9704.5 is the exact midpoint between a hike of 50 and 75 for the Sept 21 meeting.
–Dudley wrote a nice summary op-ed of Powell’s last Jackson Hole speech: Inflation transitory WRONG, little evidence of wage increases WRONG. Dudley added, probably rightly so, that he expects Powell to emphasize three themes at next week’s talk; “that the economy still has forward momentum with an extremely tight labor market and unacceptably high inflation, that the Fed must tighten monetary policy further to restrain the economy and ease pressure on the labor market, and that the Fed won’t relent until it’s sure it has done enough for long enough to achieve its 2% inflation target.” Here’s another guy that could use some advice from Matt Foley.
–Not a lot of news next week. Powell is scheduled to speak at Jackson Hole one week from today at 10:00 a.m. the same day as Sept quarterly treasury option expiration
