June 27. Change in focus?

–Several commentators are claiming the Fed has shifted its focus away from inflation and towards financial stability as stocks have continued their ascent and financial conditions have generally eased over the ‘tightening cycle’.  Some have boiled down that idea to a simple focus on stocks, thinking that the Fed is now tightening specifically to stem their rise, though that surely is too narrow an interpretation.  Yellen speaks today at 1:00 EST, preceded by Harker; perhaps there will be more evidence of such a shift, but this Fed is too timid for any bold changes.  If that were the goal, a more aggressive balance sheet program would do the trick, but the boiling frog template is more suitable to the Fed.

–In any case, 5/30 again notched a new low just under 94 bps.  Implied vol in treasuries languishes to new lows, with the atm August TY straddle below 1 point (settled 0’62) with 3 and a half weeks to go.  I marked Sept US vol out at just 7.3, also a new low, and VIX closed below 10.  Cryptocurrencies took a beating with the big tech names closing lower.  AMZN and Alphabet had outside days and lower closes.  Perhaps the Fed can just intervene in bitcoin to reach their goals…

–5 year auction occurs at the same time as Yellen; could be a small concession.  Yesterday’s data again weaker than expected.  If the Fed does manage to push stocks lower there will almost certainly be declines in confidence readings which could spill over into consumption.

Posted on June 27, 2017 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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