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Post-LIBOR Settle Update: Post-Powell Rally Recedes

US EURODLR FUTURES

Lead quarterly EDM2 trading steady to +0.005 at 98.155 after latest 3M LIBOR set' drops -0.03543 from Wed's 2Y high to 1.37071% (+0.03585/wk).

  • Futures trade weaker out the strip as they unwind portion of Wed's post-Powell rebound. Short end currently underperforming after strong rally Wed as mkts perceived Chairman Powell as ruling out 75bps hikes to address burgeoning inflation. Rolling that back this morning as Fed remains "attentive to inflation risks .. determined to take the measures necessary to restore price stability".
  • Balance of Whites (EDU2-EDH3) trade -0.010-0.060 lower, Reds (EDM3-EDH4) -0.060-0.075 lower while Blues through Golds (EDM5-EDH7) trade -0.020 lower.
  • Inversion in front Reds (mkt measure of confidence in Fed managing a soft landing/avoiding recession) continues, but off lows w/ Red Sep (EDU3) currently trading 96.495 vs. Red Jun (EDM3) at 96.405.Levels start to flatten out (dis-invert) around Blue Sep'25/Dec'25 trading around 96.945.
  • Wednesday derivatives roundup: Short end rates rallied as Fed Chairman Powell ruled out 75bps hikes to address burgeoning inflation, yld curves bull steepened (2s10s +10.358 to 28.830 vs. 13.987 low in the first half!). Equities liked the less hawkish messaging as well, SPX emini futures ESM2 +130.0 in late trade nearing 4300.
  • Eurodollar option trade segued from large put position unwinds well ahead of the FOMC, followed by large upside call buying in late trade. Salient trade: paper bought +25,000 Dec 97.00 calls, 29.0 after some +20,000 Blue Jun 97.75 calls, 1.5. In puts, large Block -60,000 Sep 97.50/97.75 put spds, 18.5, hear unwind/taking profit.
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