The bond market has been caught with its pants down!
Speculators were positioned massively short front end before the $SVB collapse, as seen from CFTC data
These positions got squeezed in spectacular fashion
But the question remains, has enough changed for a Fed Pivot?☟
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σ Whilst things do feel overdone in the near term, the flight of deposits into money markets funds cannot be denied.
And it is likely to continue until short-end rates are cut, or banks offer higher deposit rates…
But this would obviously kill their margins.
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σ Given what Powell said in front of Congress only days before the #SVBCrash, it would look pretty stupid if they didn’t follow through with a hike.
But as some commentators have said, it may mean that the US Federal Reserve will just have to cut even stronger and faster later down the line.
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σ Another thing you should be aware of ↴
The upturn in liquidity from increasing the balance sheet has been met by a massive crypto rally.
Which we know is the epicenter of speculative activity.
Something that the Fed has been desperately trying to stamp out of the market.
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σ Giving the market what it wants right now, in terms of a pause or pivot, would almost certainly fuel a frenzy in crypto & stocks.
Potentially undoing all the hard work of last year’s pain & rate hikes…
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➠ This is arguably the most challenging balancing act #Powell has ever faced…
We wish him good luck!
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What do you think happens during tomorrow’s #FOMC?
25bp rate hike? 50bp??
Or will Uncle Jerome throw in the towel and start cutting?
➠ Time will tell, but let me know what you think in the replies!
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➠ Watch the attached clip from today’s Macro Options Spotlight for more colour on my thoughts around the Fed & tomorrow’s FOMC meeting
➠ Go to the Options Insight YouTube Channel right now & watch the rest of the Spotlight to also:
• Recap of recent price action
• Today’s Cross Asset Vol Summary
• Our thoughts on whether #yields have topped & what this could mean for equities
• & Volatility Dashboards for our $SPY / $TLT Relative Value #TradeIdea
Macro Options Spotlight | March 21, 2023
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Thank you for making it this far!
Cheers!
Imran Lakha
Options Insight
