August 1. If Dudley’s cautious, Yellen’s paralyzed

–Friday’s weak Q2 reading of just 1.2% sent yields and the dollar tumbling.  Ten year yield fell over 5 bps to 145.8.  All of the front one-year eurodollar calendar spreads (out to March’18/March’19) are between 12 and 13 bps; half a hike.  While SF Fed’s Williams suggested there could be two hikes this year, Dudley early this morning could only say “… I think it is premature to rule out further monetary policy tightening this year.”

–ISM today expected 53.2, same as last.  Employment on Friday.  Yellen speaks at Jackson Hole August 26.  China Caixin Mfg PMI came in 50.6, the first above 50 since Feb of 2015.

–Implied vol sinking to new recent lows across the treasury curve as yields decline, with TY at 4.8.

–Attached chart is 5y5y inflation forward, white line, ten year treasury vs tip spread (orange), and FF target (green).  Though market expectations of inflation have edged lower, it still appears as if FF could justifiably be at 2%.

inflation mkt

RTRS: More Dudley.  “All three of these reasons – evidence that U.S. monetary policy is currently only moderately accommodative, the fact that U.S. financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations – argue, at the moment, for caution in raising U.S. short-term interest rates.” Compare to Williams: “There is definitely a data stream that could come through in the next couple of months that I would think would be supportive of two rate increases.”

BBG:  With about two-thirds of Standard & Poor’s 500 Index members having reported, earnings have declined 3.3 percent from a year earlier and sales have slumped 0.5 percent. Excluding results from energy companies, earnings have risen 1.1 percent and sales have gained 3 percent.

NOTE: Sales up 3%…not hard to see why GDP was soft.

–I’m not previously familiar with the PAYDEX index, but it appears as if payments are slowing…

AP: Companies’ slowdown in paying is reflected in a drop in PAYDEX, an index that tracks how much time small businesses take to pay their own creditors. PAYDEX fell 3 percent during the first half of this year from the last six months of 2015, according to Dun & Bradstreet Credibility Corp., which compiles the index. That decline in the index — which means companies are taking longer to settle up — followed a 1 percent increase at the end of last year when compared with the first half of 2015.

Posted on August 1, 2016 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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