Stealth MMT

July 23, 2019

–Rates were little changed across the curve yesterday, apart from weakness in the front end of the dollar curve.  While every contract from EDU20 back through golds closed +1, EDU9 fell 2.5 and EDZ9 fell 1 bp.  Therefore, new lows were posted in the first two one-year calendar spreads with EDU9/U0 at -51.0 and EDZ9/Z0 at -41.0.  It’s not just the US; going into the ECB meeting on Thursday, ERZ9/ERZ0 closed at a new low of negative 4 bps and Dec/Dec sterling is -6.5.  EUR making new recent lows this morning.

–The debt-ceiling didn’t turn into much of a fight as an agreement has supposedly been made.  ‘I’ll spend more on this, while you can spend more on that.’  They’ve quietly embraced MMT.   Equities like the flow of funds, but I’ve seen several articles warning of technical non-confirmation.  Northman Trader points out that the Cumulative advance/decline ratio and RSI are diverging from the Nasdaq rally.  Kimble charting notes that the oil and stock relationship seems to be breaking down.  And the ratio of Russell to SPX edged to a new low yesterday, not seen since 2009. 

–I’ve included a chart showing several measures of forward inflation, the tip breakeven, 5y 5y forward inflation swap and U Mich 5-10 year inflation expectation. All have perked up a bit from recent lows.  As an aside, my understanding is that the limitation of MMT is supposed to occur when inflation begins to accelerate…

–News today includes Existing Home Sales and the 2 year auction.

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Posted on July 23, 2019 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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