Slow grind
July 16, 2019
–It was a slow Monday with a bias towards a flatter curve. Tens fell 1.6 bps to 2.09%. Powell speaks this afternoon, ‘Aspects of Monetary Policy in the Post-Crisis Era’. Data includes Retail Sales expected +0.1 for both headline and ex-auto and gas. Industrial Production also expected +0.1. I believe Fitch yesterday issued a note saying the Fed would cut only once in July and then be on hold. Odds for a Sept ease after July remain quite high; for example, Aug/Oct FF spread closed -17.5 (isolates Sept FOMC meeting), and EDU9 settled yesterday at 9793.5 vs a final settle (to libor) of EDN9 at 97.6967, a spread of -23.83.
–A large trade went through yesterday in 50k in ED options that could also be thought of as reflecting a view of a few eases in July and Sept, but nothing after that. The trade was a buy of 50k EDQ 9800/9812c 2×3 (settled 3.5 and 1.0 or 4.0 in 2×3) and sold 50k EDZ9 9800/9837/9875c fly which settled 7.5. The package was sold from 4 down to the settlement of 3.5. The December call fly was an exit and the August 9800 calls were new longs. Strikes of 9800 on both… if one thought EDU9/EDZ9 were going to decline further in a slowly upward grinding market, this would NOT be the time for the trade. This trade suggests the possibility of 3 eases being priced by fall. In any case, took money off the table and kept a long in front. (EDU9/EDZ9 settled -7.5).
–One other somewhat interesting note. Cass trucking volumes show a decline in freight VOLUME for the past seven months, but prices steady to higher. A larger picture of stagflation?
