Sept 13. Fed meeting next week
–Much lower than expected Jobless Claims caused a spike lower in treasury futures which instantly reversed as data was skewed by technical glitches. However, the trend in claims remains lower. By the end of the day, treasuries had given up intraday highs and were around unchanged, the eurodollar curve steepened with reds closing +1.5 and blues -1.5. (There was a buyer of 70k Blue Oct 9675/9650 ps for 4.5).
–Today’s news includes PPI expected +0.2 with +0.1 core. Retail Sales expected +0.5 and +0.3 ex-auto. It’s a bit hard to see where growth in retail sales comes from with revolving credit falling the past two months. Income growth remains tepid. Maybe it’s just all “back to school” purchases made with soaring (non-revolving) educational loans. Textbooks. Pencils. The occasional iPad.
–Fed meeting next week with widespread expectation of small taper. The question of forward guidance is probably the larger issue. A note by Goldman’s Hatzius predicts “…the statement will make the 6.5% unemployment threshold conditional on a return of inflation to the 2% target and will indicate even more explicitly that continued below-target inflation would translate into a longer lag between reaching the 6.5% threshold and the first hike.” There could be a reduction in the unemp threshold to 6.0%.
–Japan’s Nikkei reports that Summers will be nominated by Obama as early as next week. Perhaps the current Fed will be even more aggressive in trying to lock in forward guidance to handcuff Summers over the short term, which probably argues for a steeper curve.
–Gold is down another $15 this morning around $1315, off just over $100 from the high made in late August.
