NFP has taken on ginormous importance
Movie rec: “Tuner” is an excellent movie. Great directing reminiscent of Darren Aronofsky with a bit of an Ocean’s Eleven plus Whiplash vibe. Cool plot, excellent acting.
8.7 out of 10.
highlights
USDJPY and NFP
Current Views
Convert short USDJPY cash
into 1-week 161.50 put
for ~31bps off 162.40
30JUL USDMXN put fly
17.40/17.15/16.90
1X2X1 for 30bps off 17.52 spot
13JUL USDKRW put spread
1530/1505 for 37bps off 1543 spot
USDJPY
The rubber is meeting the road as the last time USDJPY traded here, Walk Like an Egyptian was topping the charts, Crocodile Dundee was in theatres, and Alf was on TV. Alf was the best. At this point, the MOF either has to fire another shot or abandon ship and let the JPY spiral.
I am perhaps a bit too pot-committed on my USD bear view with NFP coming up. Sintra tomorrow is another bit of event risk, but my feeling is that with so much riding on July FOMC, Thursday’s payroll will end up as a deciding factor if it comes in more than 1.5 SD away from expectations. Here is the distribution of expectations:
Figures are normalized to sum to 100—Polymarket percentages do not add to 100
Anything above 150k or below 50k is meaningful, while sub-zero or >200k are barn burners, depending a bit (of course) on the UR and AHE figures that come out at the same time. It’s not sensible to be short spot into the release because there is too much risk of getting dinged through the highs on a barrier / stop loss cleansing pre-data or a strong jobs report, so I am taking the 60-pip loss on the cash USDJPY and turning it into a 1-week 161.50 put for around 31 bps off 162.40 spot. I feel that if this view doesn’t work out within the next week, it’s time for me to move on. We are right in intervention territory and NFP is either going to help or it’s not. So the 1-week timeline feels right to me. If it doesn’t work, I can move on to better ideas.
My fear at this point is that a strong NFP will lead the market to believe that Warsh can convince an increasingly hawkish committee to hike in July or bare minimum use the July FOMC meeting to signal September. While I don’t believe Warsh’s hawkishness will stand up to the future data (softer inflation), the view that he wants to hike in July to establish credibility is not at all unreasonable.
For a bit of history on how central bankers tend to come in guns blazing hawkish, here are two short research reports that Simon Flint flagged to me:
https://cepr.org/voxeu/columns/mark-carney-and-first-impressions-monetary-policy
Final Thoughts
- I am keeping it short today as I don’t feel there is much to say until NFP is resolved.
- Neat to be on the board with an author I respect greatly and grew up reading at the start of my career.
- The MSTR doomloop continues in slow motion.
How do you solve a problem like STRC? https://x.com/FarsideUK/status/2070844434355286403
Have a very loud day.
Movie rec: “Tuner” is an excellent movie. Great directing reminiscent of Darren Aronofsky with a bit of an Ocean’s Eleven plus Whiplash vibe. Cool plot, excellent acting.
8.7 out of 10.
