Aug 23. Tremblers

–From the Fed minutes: ““The staff’s analysis indicated that…  there was a meaningful risk that the ELB [Effective Lower Bound] could bind sometime during the next decade.”  I don’t like the sound of that.  “Bind”.  Like underwear.

–Why did the Aug 1 FOMC minutes start with staff analysis of how the Fed might handle a return to the Effective Lower Bound (ELB)?  Perhaps a purely academic exercise, but here are some additional quotes: “Many participants commented on the monetary policy implications of the apparent secular decline in neutral real interest rates.   … Fiscal policy was viewed as a potentially important tool in addressing a future economic downturn in which monetary policy was constrained by the ELB; however, countercyclical fiscal policy actions in the United States may be constrained by the high and rising level of federal government debt.   …spells at the ELB could become more frequent and protracted than in the past, consistent with the staff’s analysis. Moreover, the secular decline in interest rates was a global phenomenon, and a couple of participants emphasized that this decline increased the likelihood that the ELB could bind simultaneously in a number of countries.   ….participants acknowledged that there may be limits to the effectiveness of these tools in addressing an ELB episode. They also emphasized that there was considerable uncertainty about the economic effects of these tools.”  Doesn’t sound particularly optimistic.

–On the other hand, Reuters this morning reports that Weidmann says ECB mustn’t delay rolling back stimulus.

–On Wednesday yields started lower and then edged back up as stocks recovered from the shock that Trump might have engaged in unseemly behavior.  2/10 posted a new low, closing 22.8.  From the March hike to the June hike, 2/10 went from 55 to 39 or 16 bps.  Since then we’re a t 23, another 16 bps.  Safe to call it 1/8 % to 3/16% of flattening per hike??  Maybe.  Which would indicate single digits after the September meeting.

–Gold walloped this morning by $10 as USD again strengthens.

–Job Claims and New Home Sales this morning.  Powell’s Jackson Hole speech tomorrow.

–Nothing earth shaking in the markets, BUT….the earth is shaking.  Many earthquakes in the ring of fire over the past 48 hours.  Here’s a great link:

Posted on August 23, 2018 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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