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30 Day Federal Funds Interest Rate Futures30 Day Federal Funds Interest Rate Futures30 Day Federal Funds Interest Rate Futures

30 Day Federal Funds Interest Rate Futures

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ZQ1! trade ideas

The only charts that countToday's NFP print was an astronomical miss (3 sigma), which is just another reminder that economic models/risk models are breaking across the board as they can no longer explain reality. Everybody seems confused about how to interpret what is going on in the labor market, but the main takeaway, as expressed through above charts is, that the Fed will hike even faster than previously anticipated. Once again market's have failed to price in the reality on the ground and the hill markets have to climb over the coming months (especially the growth complex) is only getting steeper. Prepare accordingly. Explainer: Both charts are mapping the expected future federal funds rate. Left is April, right is December.
CBOT:ZQZ2022
by GammaLab
4 hikes in 2022? Not so fast.The implied fed funds rate for December came back 6 basis points today and is telegraphing a fed funds rate of about 0.88 bps, which is suggesting 3 hikes. 1.5 bps of that compression happened in the after markets and I wonder if it was Gundlach that spooked markets with his call for a recession. Yes, in the big scheme of things (+65 bps since September) a drop of 6 bps is minuscule, but it could point to a further expansion of today's relieve rally if the CPI is playing along tomorrow morning. Cheers.
CBOT:ZQZ2022
by GammaLab
2
Rate hike expectations are acceleratingI did not post a gamma update, because not much changed and that is pretty perplexing in itself. In general the markets do not want to stay in negative gamma territory and they typically do not get pinned at "put barriers". Or to think about it from another angle: Volatility does not like to move sideways on an elevated level. It's natural tendency is to shoot up and regress back. Or think about it from that perspective: Nobody holds a put for fun, since it is expensive. If markets go sideways you better close your position. Overall, the situation is not stable and my guess is that we will see a resolve in the coming days. The situation gets more perplexing if you look at the above chart, which maps the April fed funds future contract. Right now this contract is pricing in a rate hike and that means a rate hike in March since there is no April meeting. I would only want to hold a growth (tech) portfolio going into March if I truly had lots of confidence in the Fed, meaning I trust them to combat inflation while at the same time keeping the economy intact. Is this trust justified given their catastrophic misjudgement of inflation only a couple weeks back? Hm.. But anyways. I am just trying to understand why the markets, especially growth stocks are holding up so well and I am open to fresh perspectives. Bring it on :).
CBOT:ZQJ2022
by GammaLab
11
The story of the quarterThe main story of the quarter was certainly the realization that inflation is not transitory as claimed for months by the Fed and other central banks, and the final acknowledgement of their own ignorance in recent weeks. The fed funds future markets now clearly price in a hike for May and I am wondering if the stock market is maybe similarly behind the curve regarding the consequences? So far stocks certainly profit from the fact that yields on the long end are not moving higher with inflation expectations, but how will this situation resolve when the CBs finally take action? What is your prediction?
CBOT:ZQK2022
by GammaLab
2
Rate hikes are off the table (for now)We talk alot about rate hike expectations. While the fed funds future markets have aggressively priced in a rate hike scenario for June over the last days, those expectations have completely collapsed today. The new variant, no matter how game changing it really is, will give the Fed certainly much more wiggle room to delay any hikes. So despite the patellar reflex market reaction today, markets could interpret this as "bullish" if you will. Best case scenario for the Fed would be a virus situation that is safe enough to be considered "under control" (aka no lockdowns/travel restrictions), but on the other hand side prominent enough to dial up the uncertainty regarding the future growth/inflation path.
CBOT:ZQM2022
by GammaLab
Measuring the impact of todays inflation printUS-Senator Manchin just said minutes ago that we can not longer ignore the economic pain of inflation and todays print was another reminder that "team transitory's" credibility is eroding fast. But well, what do the markets think the Fed will do? I took the Federal Funds Future for June (the date at which a majority of market participants see the first rate increase) and inverted it, so I get the projected rate. (100-Federal Fund Future Quote = expected rate). For clarity I also added the effective federal funds rate and the Fed target band (0-25 bps). Enjoy.
CBOT:ZQM2022
by GammaLab