Squeezy
May 15, 2024
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–Copper continues to scream higher, now over $5. Chart at bottom, but here’s a chart of the July/Sept calendar spread. There’s plenty of nervous excitement about short squeezes in GME and AMC, but less so about a critical input to energy infrastructure which is in supply deficit (according to Druckenmiller, Gromen, etc). Doesn’t particularly bode well for forward inflation, but that’s a story for the future, not today’s CPI.
–Yields eased yesterday despite higher than expected PPI data, though previous data was revised significantly lower. M/M was +0.5% both headline and Core but previous months were revised down to -0.1 from +0.2. Data releases appear to be a bit more volatile recently. Rate futures spiked lower on the initial release, but then popped right back up. At the end of the day yields were lower, with tens -3.8 bps to 4.443%. Star performer on the SOFR strip was SFRZ5, +6 on the day to 9589.0 or 4.11%. SFRZ4/Z5 thus made a new recent low of -77.5 (9511.5/9589). The most inverted one-year calendar remains the front SFRM4/M5 at -89.0 (9469.5/9558.5). In February the front (most-inverted) spread was -150 to -160.
–Powell’s comments accentuated the inversion: from BBG bullet points, “It’s a question of keeping policy at the current rate for longer. Time will tell if we are sufficiently restrictive.” There was also a financial stability warning: LENDING ACTIVITIES BY NONBANKS ARE GROWING VERY, VERY FAST… WE NEED TO MONITOR THAT VERY CAREFULLY, WE WORRY ABOUT THAT FAST GROWTH… MAKES YOU WONDER IF THERE ARE FINANCIAL STABILITY CONCERNS THERE.
–After Powell admitted the miss on SVB, one has to think these comments would lead to heightened surveillance on shadow banking at a time when many companies are facing debt roll-overs with onerous rates. The NY Fed’s Household survey indicated increased delinquencies. Rates which remain relatively high into the future reduce the present value of future earnings and maintain pressure on companies (and households) that need to roll debt.
–CPI today expected 0.4 from 0.4 with Core 0.3 from 0.4
yoy 3.4 from 3.5 and Core 3.6 from 3.8
Retail Sales expected 0.4% from 0.7%
