State hoarding
May 16, 2022
–This morning it’s all about China. And Wheat. China’s data was terrible due to covid lockdowns, with April Industrial Output -2.9% yoy. Retail sales -11.1%. The yuan continues to weaken with CNY 6.794. July Wheat is up over 50 cents at 1230. High on March 8 was 1278 1/4; today’s high is 1247 1/2 as India declared an export ban. Recently it was Indonesia with a ban on exporting palm oil. Mohamed El-Erian warns about the cumulative impact of a series of “little fires” in the developing world, but the prospect of state hoarding adds another dimension. NatGas currently trades around 7.70 to 8.30. A market making friend tells me that the winter months $50 call strip has been trading.
–China’s data sent stock futures into negative territory this morning. There are a lot of cracks developing…for example, Danielle DiMartino Booth tweeted “Corporate bonds and loans trading distressed spiked to $139.1b on Friday from $83.1 a week earlier.” Zombies that have been dependent on generous capital markets to stay afloat are seeing flows evaporate.
–Rate futures fell on Friday and the curve steepened. The 2-yr yield rose 7.7 to 2.597% and tens rebounded 11.7 to 2.931%. 2/10 closed 33.4. Recent high was one week ago at 46. Lowest contracts on the Fed Funds strip over the near term are in Q3 of next year, with June’23 to October’23 settling between 9693.5 and 9695.5 or just over 3%. This perceived “terminal rate” has fallen since the last FOMC, where FFQ3 traded as low as 9649.
–Empire Mfg today and TIC flows. Retail Sales and Powell tomorrow.
