October hike odds and the 10-year bet against bonds and stocks, Sep 23
Bonds moved in the PMI's quarter-hour. The October contract moved in the next one, when Barr's remarks were out. The 10-year bet took its biggest step after the auction.
Scott Bessent said Washington was open to more than the Busan truce, and the only bets on a summit trade deal carry a few thousand dollars. Michael Barr said the Fed was "out of position," and the October hike contract gained 15 points on three-quarters of a million.
Bonds moved in the PMI's quarter-hour. The October contract moved in the next one, when Barr's remarks were out. The 10-year bet took its biggest step after the auction.
"In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction," Governor Michael Barr said in remarks to a Chicago Fed housing summit. "In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion" (Federal Reserve). Reuters' story on the remarks is stamped 10:07 a.m. New York time, 14:07 UTC (Reuters via Investing.com).
A week earlier Kevin Warsh had told reporters he was "not in the forward guidance business." Polymarket's contract on a quarter-point October hike, with about 356,000 dollars traded, sat at 53.5% through 14:00 UTC, printed 60.5% in the quarter-hour after and 68.5% by 14:45. Kalshi's version, the deeper book at 754,000 dollars, went from 51% at 13:00 UTC to 61% by 15:00 and touched 70% in the 16:00 hour.
It closed the session at 66%, its highest since the September 16 hike (CNBC). Kalshi's December contract barely followed, from 67% to 69%. Money moved the next hike earlier. It did not add a second one.
The October contract has now done its two biggest one-day moves on the two days a Fed official spoke about policy. December moved on the first one only.
13:45 UTC. S&P Global's flash composite PMI came in at 58.4 against a 55.2 forecast and August's 56, with manufacturing at 57.0 (FXStreet). "US business continues to boom, with output growing at the fastest rate for over five years in September," said Chris Williamson, S&P Global's chief business economist (S&P Global). CNN reported that input costs surged with energy prices (CNN).
The 10-year yield went from 4.992% to 5.029% in the quarter-hour containing the release, and SPY slid from 771.90 to 770.68. The October contracts on both venues did not trade higher until the next quarter-hour, the one Barr's text arrived in. The two events landed about twenty minutes apart, and this desk cannot fully separate what each did to the Fed bet.
By 14:15 UTC SPY had hit 768.37 and the dollar index had crossed 101. Gold futures slid from 4,349 at 13:30 UTC to 4,317 by 14:15 (Kitco).
At 13:00 New York time the Treasury sold 70 billion dollars of five-year notes at 5.033%, against a when-issued yield of 5.002% just before the deadline. InvestingLive put the 3.1 basis-point tail against a six-auction average of 0.6 (InvestingLive), and ZeroHedge counted it the second-largest tail on record, with bid-to-cover of 2.21 the lowest since December 2018 (ZeroHedge).
SPY printed its session low of 766.50 in the 17:00 UTC quarter-hour. The VIX jumped from 14.92 to 15.45 in the same window, and TLT reached its low of 80.23 half an hour later.
The prediction market that cared most was about the 10-year itself. Polymarket's contract on the yield touching 5.2% before 2027 started the day at 38%, reached 58.5% by 16:00 UTC and 76.6% by 18:00, finishing near 78%. It has about 16,000 dollars behind it, a thin book, but it is the only venue asking whether the bond selloff has further to run, and its answer arrived after the auction rather than after the Fed governor. The 10-year settled at 5.114%, its highest close since 2007 (CNN).
"The Chinese on Sunday came up with the idea of a bigger deal," Treasury Secretary Scott Bessent told reporters after his second meeting in four days with Vice Premier He Lifeng, "and given that this could be a historic year where the leaders meet up to four times, this being the second meeting, in Shenzhen and then in Miami, we're open to the idea of just continuing the Busan arrangement or examining the bigger deal" (Reuters via U.S. News). He gave no detail, and Bloomberg framed the session as talks on "unfinished" work (Bloomberg). The Busan truce expires November 10.
The Reuters account does not give the minute Bessent spoke, so no candle can be pinned to it. Across the whole session the answer from the assets closest to a deal was no. FXI, the China large-cap fund, fell 1.8% to 34.36, KWEB fell 2.0%, and the offshore yuan weakened from 6.698 to 6.711 per dollar, with another leg down between 13:30 and 14:15 UTC, the same half-hour the Fed bet repriced.
The deliverables themselves split. Boeing, whose Chinese order book Jamieson Greer described this week as roughly 140 aircraft in "a good state" (CNBC), rose 1.1%. MP Materials, the US rare-earth miner, fell 4.2%, and November soybean futures slipped 0.6%.
Each tariff contract has less than 6,000 dollars of lifetime volume. The September 30 contract's jump came at 01:45 UTC, before any of the day's summit news.
Polymarket's contract on a US-China tariff agreement by September 30 stood at 44.5% at 01:30 UTC Wednesday and 66.5% fifteen minutes later. The October 31 version jumped from 52.5% to 80.5% in the same quarter-hour. By the close they were at 77% and 83%.
Both books are tiny, about 3,000 and 2,000 dollars of lifetime volume. That is one or two traders' opinion. Xi Jinping's plane left Beijing in the afternoon local time (gov.cn), hours after the jump, and nothing this desk found was published at 01:45 UTC.
The largest contracts about the summit are about ceremony. Polymarket's market on Xi visiting by September 23 settled near certainty on about 107,000 dollars, and the handshake-length ladder draws more money than the December tariff deal, which sat at 91% on about 5,300 dollars, a point and a half below Tuesday's close. The thin bettors say a trade agreement arrives within a week. China's own stocks and currency, where the real money sits, fell on the eve of the handshake.
Iranian President Masoud Pezeshkian, scheduled at the General Assembly for about 16:00 UTC, answered Tuesday's "annihilate" threat from the same podium: "We did not bend the knee" (Times of Israel). A member of the US delegation walked out minutes into the speech (Irish Times).
Polymarket's contract on the US announcing an end to its Iran blockade by October 31, with about 143,000 dollars traded, went from 36.5% in the 16:00 UTC hour to 33.5% an hour later and closed at 32.5%. That hour also held the 5-year auction, so the move is adjacency.
WTI rose from 89.60 at 07:00 UTC to 92.63 by the close, snapping a five-session slide in what CNBC's headline tied to Iran's vow not to surrender (CNBC). About 2 dollars of the climb came between 11:00 and 14:00 UTC, before Pezeshkian took the podium.
Trump planned to meet Xi on the tarmac, the first time a US president has greeted a visiting leader at Andrews since John F. Kennedy met Harold Macmillan in 1962 (South China Morning Post). The Associated Press had the arrival as the start of a three-day state visit, with the summit and a state dinner at the White House on Thursday (AP via PBS). No candle before the 21:00 UTC cutoff carries the landing.
Thursday's open inherits two prices. On one side sit 750,000 dollars on the Fed moving in five weeks, a 5-year note that needed a 3.1 basis-point concession to clear, and the week's 7-year note sale still ahead. On the other sit about 10,000 dollars across three tariff contracts saying a deal is close, and a China ETF that fell 1.8% the day before the leaders meet.