Nov 15. Powell and the Pound

–Treasuries are higher and stocks marginally better in the wake of Powell’s comments.  The drop in GBP on the resignation of cabinet member and Brexit negotiator Raab is likely also a contributor to the UST bid. (GBP testing the year’s low, now 1.2778 vs ytd low 1.2665).  No drama in Powell comments.  No indication of a change in balance sheet normalization.  He mentioned risks in the form of “slowing global growth, less boost from fiscal actions and delayed impact of monetary policy” though he added that the Fed has a good sense of these risks. The eurodollar curve continues to forecast economic malaise by the end of next year, with calendar spreads from EDZ19 forward either flat or inverted. EDZ9/EDZ0 settled zero; spreads in front are positive and behind are negative. Yesterday, the strongest contract on the strip was EDH20 closing up 5, with successive contracts showing smaller gains as the curve steepened on weak stocks. Ten year yield fell 3.3 bps to 3.12%.
 –CPI was about as expected with Core yoy +2.1.  Later in the day NY Fed released their Underlying Inflation Gauge UIG: the Full Set fell from 3.10% in Sept to 3.07% in Oct and Prices only increased slightly from 1.94 to 2.00%.  Today brings Philly Fed, with the headline number expected 20.0 from 22.2 last.  Prices paid peaked in July at 62, and then tailed off from there, with last at 38.2.
–A lot of talk about AAPL which has fallen 20% from the high in early October.  On the other hand, from the late April low of 160 to the Oct high of 233, the increase was an eye-popping 45%.  An analyst on CNBC proclaimed a target of 165 (closed yesterday 186.80) and was met with snarky smirks… but is it crazy to think that April’s levels could be revisited?
–Although corporate spreads overall remain tight, I include below a chart of Investment Grade CDX which is at a new high for the year as GE and PG&E send some shivers through the market.
Posted on November 15, 2018 at 5:11 am by alexmanzara · Permalink
In: Eurodollar Options

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