BOE: Why does Mann think that second-round inflation risks are lower now?
Feb-11 09:18
- On of Mann's main points is that she said last year don't be deceived by headline inflation falling back - and now her message is don't be deceived too much by the upcoming inflation hump ("yet"). This is largely because these moves are being caused by non-domestically driven demand pressures.
- She thinks that the risks of second-round effects are lower now due to:
- Distributions in the wage data - noting that "Expected wage growth is fairly tightly centered around a target-consistent 3% for goods and business-services firms. For consumer-facing firms, currently the greatest probability mass (in aqua) is closer to 4%, which likely is not target-consistent."
- "I judge that the current and likely continued weak demand conditions will lead to a further loosening of the labor market which tend to follow non-linear dynamics. Thus, even if near-term inflation expectations firm on the back of the inflation hump, these factors likely will restrain pass-through to wages and prevent second-round effects from setting in."
- Third on employer NICs: "Those firms who reported reduced employment growth as a margin of adjustment revised down their employment growth expectations significantly (solid versus hollow orange diamonds in Chart 9) following the Budget announcement. Cost increases more generally on firms, particularly smaller ones, expose cash flow vulnerability, with 39% of respondents to the BICS survey holding cash reserves sufficient for less than 4 months. Research suggests that such cash flow vulnerability is associated with job shedding, which may become more apparent as COVID support policies run off.
- On pricing power: "I have focused on the most income and price elastic categories of products as the leading indicators of how consumer behavior can discipline firms’ pricing strategies. In the latest disaggregated data, the decelerations in these categories such as catering, culture, and hospitality have become more systematic."
- "Looking beyond 2025, I judge that the dynamics of soft sales volumes, already observed for a year, will be accentuated as household savings rates remain high, both as an ongoing precaution against volatility in purchasing power and then also on account of heightened unemployment concerns. This likely soft consumption profile will constrain firms’ pricing power and will moderate pass-through of costs."
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US TSYS: Strong Jobs & Unemployment Rate Dip Dashes Rate Cut Hopes
Jan-10 20:22
- Treasuries gapped lower after Friday morning's larger than expected December non-farm and private payroll gains while unemployment dipped slightly.
- The 256k in December leaves a strong recent trend, with 255k in Sep, an average of 128k for those two months (initially 132k) before surprisingly reaccelerating again. Unemployment rate: 4.086% in Dec after very small downward revisions in the prior two months, with 4.23% in Nov (initially 4.246%) and 4.14% in Oct (initially 4.15%).
- The Dec'24 10Y contract traded down to 107-12 low (-27) well through technical support of 107-19.5 (1.618 proj of the Oct 1 - 14 - 16 price swing) next level: 107-04 (Low Apr 25 ‘24 and a key support). Curves bear flattened but finished off lows, 2s10s -3.937 at 38.383 vs. 36.572 low, 5s30s -9.612 at 37.484. 10Y yield taps 4.7860 - highest since May 2022.
- Futures retreated towards post data lows late in the session while projected rate cuts through mid-2025 have retreated since this morning's data, current vs. morning levels* as follows: Jan'25 at -0.7bp (-1.7bp), Mar'25 -6.3bp (-10.1bp), May'25 -10.5bp (-15.9bp), Jun'25 -18.2bp (-25.6bp), Jul'25 -20.2bp (25.5bp).
- Next week brings CPI and PPI inflation measures on Wednesday and Thursday respectively, the scheduled Fed speaker docket rather muted with the Fed Blackout next Friday.
US TSYS: Lat eSOFR/Treasury Option Roundup: Heavy SOFR Puts
Jan-10 20:09
Heavy option volumes reported Friday, SOFR outpacing Treasury flows with the former leaning towards downside puts as underlying futures retreated towards post data lows late in the session. Projected rate cuts through mid-2025 have retreated since this morning's data, current vs. morning levels* as follows: Jan'25 at -0.7bp (-1.7bp), Mar'25 -6.3bp (-10.1bp), May'25 -10.5bp (-15.9bp), Jun'25 -18.2bp (-25.6bp), Jul'25 -20.2bp (25.5bp).
- SOFR Options
- Block, 9,000 SFRM5 95.62/95.75 put spds, 6.0 ref 95.84
- +20,000 0QK5 95.25/95.50 put spds 1.0-1.25 over 96.00/96.12 call spds
- Block, +6,400 SFRZ5 97.00/98.00 call spds, 8.0 vs. 95.925/0.12%
- +8,000 0QM5/0QU5 94.50/95.00 put spd strip 9.75 total
- +5,000 0QM5 94.00/94.50/95.00 put flys, 2.5 vs. 95.87/0.05%
- +10,000 SFRZ5 95.25/95.75 2x1 put spds, 3.25 ref 95.915
- +6,000 SFRM5 96.00/96.25 call spds, 4.5 ref 95.845
- -5,000 SFRZ5 96.56 calls, 18.5 ref 95.905
- -6,000 0QM5 95.75 puts cvrd vs 2QM5/3QM5 95.75 put strip cvrd, 10.5 net puts over
- +20,000 0QM5 96.37/97.00 call spds vs 95.37/95.62 put spd, 3.0 net calls over
- -10,000 0QG5 96.00 calls, 12.0 ref 95.95
- -20,000 0QH5 96.62 calls, 3.0
- +7,000 0QZ5 97.25 calls, 9.5 vs. 95.87/0.14%
- +10,000 SFRJ5 96.50 calls, 2.75 ref 95.855
- -5,000 SRM5 96.00/96.25 call spds, 4.5 ref 95.845
- -8,000 SFRJ5 95.75 puts, 7.0 ref 95.84
- -10,000 SFRG5 95.68 puts, 1.5 ref 95.75
- +5,000 SFRU5 96.50/97.00 call spds 5.0 ref 95.88
- +10,000 SFRK5 96.50/96.75/97.00/97.25 call condors, 1.00 ref 95.91
- Block, 5,000 SFRZ5 95.25/95.75 2x1 put spds, 3.0 net ref 95.935
- 5,000 SFRM5 96.06/96.18 call spd vs. 0QM5 96.25/96.37 call spd
- 10,000 SFRF5 95.87 calls, cab
- 2,000 0QG5 95.81/95.87/95.93 put flys ref 96.02
- Block/screen, 10,000 2QH5 95.00/95.50 put spds, 4.0 vs. 95.94/0.15%
- +3,000 SFRH5 95.875/96.1875 call spd 3.25, ref 95.795
- 1,500 SFRK5 95.75/95.87/96.00 put flys ref 95.92
- Blocks, +10,000 SFRM5 95.75/95.9375/96.1875/96.375 call condor, 5.0 vs. 95.90/0.10%
- Blocks, +18,966 SFRJ5 96.125/96.3125/96.5625/96.75 call condor, 2.50 ref 95.93
- Treasury Options
- 10,000 TYG5 107.5/108.25 call spds 27 ref 107-24
- 4,000 TYG5 104.25/105.75 put spds ref 107-21
- -10,000 TYG5 106/106.5 put strips, 14
- 4,000 Monday wkly TY 107/107.25 put spds ref 108-03 (expire Monday)
- over -19,500 wk2 TY 107.5 puts, 4-5 (expire today, OI 39,662)
- 2,000 TYH5 106/108 2x1 put spd vs. 108.5/111 1x2 call spds ref 108-08.5
- 3,150 TYH5 111/113 1x2 call spds ref 108-02.5
- 2,000 TYG5 109.5/110.5/111.5 call flys ref 108-04.5
- +13,000 TYH 106.5/107.5 2x1 put spd, 4 ref 108-05 (106.5 strike appr 4.95%)
- 3,500 TYG5 108/109.5 put spds, ref 108-05
- 5,000 TYG5 106.5/107.5 put spds, ref 108-05
JGB TECHS: (H5) Downtrend Extends
Jan-10 19:55
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 142.73/144.48 - High Dec 9 / High Nov 11
- PRICE: 140.58 @ 19:10 GMT Jan 10
- SUP 1: 140.54 - 2.236 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 2: 140-00 - Round number support
- SUP 3: 139.38 - 2.764 proj of the Aug 6 - Sep 3 - 9 price swing
A clear downtrend in JGB futures remains intact and the latest fresh cycle lows, reinforces this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes the 140.00 psychological handle next. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively.
