Aug 14. The global markets have already tightened for the Fed

-Quiet day yesterday with yields continuing to back up after the rally associated with China’s revaluing of the yuan.  Tens rose 5.9 bps to 219.1.  5/30 flattened 3.4 bps to 128.3, even though the 30 yr auction was a bit soft.  Oil traded into the 41 handle to new 6.5 year lows.  EM currencies making new lows against the dollar.  For example, the Indian rupee is now 65.20, new low vs the dollar, having weakened over 6% this year from 61.40 (in late Jan).  The Fed meeting is just 4 1/2 weeks away.  There will be no hike.
–Retail sales showed some strength helped by auto sales.  Subprime auto loans are seeing increased delinquencies, as are student loans.  The whole idea of QE was to compress rates on riskier assets to spur the economy.  Without QE, the market is forced to reprice risk into the spectrum of credit at the same time the commodity complex is imploding.  The net effect is that borrowers find debts more onerous to service.  At the same time US exporters face the headwinds of a stronger USD, and one of the solutions is to export the labor input into cheaper locales.  Market forces have already tightened for the Fed.

–Eurozone Q2 GDP was slightly lower than expected at 0.3.  The Atlanta Fed GDP now model dropped its forecast for Q3 from 0.9 to 0.7, mostly on a technical adjustment.  But it’s not being dropped 0.2 from 2.5 to 2.3….the number is still sub 1%.  Of course, last time it started low and moved higher as data came in…this time could be the same.
–News today includes PPI expected 0.1 both headline and core.  Industrial Production expected +0.3, with Capacity at 78.0.  By the way, capacity utilization has been drifting down all year, it was 79 early this year.  Michigan Sentiment expected 93.5 from 93.1.

Posted on August 14, 2015 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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