Jan 30. Lack of FOMC urgency

–FOMC announcement today.  Since the time Powell indicated patience and flexibility, the dollar index is about unchanged.   Oil and broader commodity indices have rallied this month but remain below levels from early December.  The ten year note to inflation indexed tip is around  177 bps now, vs close to 200 bps at the beginning of December.  The lowest one-year euro$ calendar spread is EDZ9/EDZ0 at -17, just above the current Chicago air temp of -19 farenheit.  FF contracts indicate little chance of a hike at the next three quarterly FOMC meetings (the May/July spread which isolates the June FOMC settled 3 bps, a slight tilt towards a possible hike).  The March/June euro$ spread likewise settled at 3.0.  Stocks are about halfway back from Q4’s plunge, which I suppose is consistent with the idea that balance sheet run-off will be tapered.  There’s really nothing that suggests urgency to act; inflation expectations have fallen and growth will be negatively impacted by the gov’t shutdown.  A schedule to trim QT can be kicked down the road to March.  If concrete measures were announced today to slow QT significantly, then stocks would likely react favorably with a minor negative impact on fixed income.   

–In euro$’s yesterday 3EU 9800 calls continue to be liquidated at 5.0 ref futures 9738 to 41.  Over 100k traded with open interest down 50k, settled 5.0 vs 9741.5.  Red/green pack spread settled at a new low of -8.125, down 0.625 yesterday. This, I believe, suggests the market perceives the central bank as “tight”.  As mentioned over the weekend, this is below the low of the 2004/06 tightening cycle, and just 1.25 bps away from the lowest level of this century, set in March 2000 at -9.375.  From this standpoint, it might make sense to look at buying the last reds to last greens, or first greens to first blues (though there’s obviously negative roll).  EDU0/U1 settled -5.5 and EDZ0/Z1 -3.0.  In fact, late yesterday there was a buyer of 2EH 9762c vs 3EH 9762c. This spread settled 1.0, 5’s and 4’s.  

–AAPL’s earnings report was rec’d favorably, having had expectations beaten into the dirt beforehand.  Today MSFT and FB report.  

Posted on January 30, 2019 at 4:58 am by alexmanzara · Permalink
In: Eurodollar Options

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