THAT is why I am your king!

March 15, 2019

–Going into next week’s FOMC meeting, the new ‘dot plot’ and projections should be interesting.  In December, the projections indicated 2.9% for the Fed Funds target by the end of the year, so two hikes.  However, the dot plot actually had 6 dots at 3.1% (out of 17 total).  Obviously these projections will come down to some degree.  But what is the MARKET saying, and further emphasizing yesterday?  That the next move is going to be a cut.  For example, EDH9 is expiring Monday and settled yesterday at 97.3875.  However, there was new buying in EDZ9 9750/9785cs for 5.75 (40k).  There was also smaller buying in EDZ9 9750/9775c 1×2 for 0.5 and 9762/9787c 1×2 for flat.  At expiration, EDZ9 has to trade above 9756 for the initial call spread to break even.  I.e. that trade is looking for a cut. There’s an article on BBG today: ‘Fed puts inflation expectations at the heart of  major policy review’.  Pinning hopes on expectations of a data set that’s difficult to measure in order to capture the holy grail of 2%.  Sounds a bit desperate. (You can’t expect to wield supreme executive power just ’cause some watery tart threw a sword at you!) [that one’s for you YZ]  

–Here’s a hint:  The futures markets ARE TELLING YOU what forward expectations are.  Oh, then it’s simple, isn’t it?  The Fed should just start selling back month dollars and flip the calendars from negative to positive.  [Look Potter, I’ll put in a direct line, AND I’ll make sure to raise your commission by at least 2% every year].

–Anyway, it’s not just the Fed, the BOJ affirmed holding the ten year yield around zero as it tempered forward growth expectations in its quest for 2%, as slowing global growth hurts exports and output. The market’s response: “It’s not that we don’t believe you, but we just aren’t going to trade this stuff anymore.”  

–Jussie Smollett could build a more credible story.

And now, for something completely different

Posted on March 15, 2019 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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