August 27. Syria jumps into forefront
–Interest rate futures rallied in the wake of weak Durables (-7.3%), with ten year yield down nearly 2 bps to just above 280. Not much change in the curve. After the data, Goldman reduced Q3 GDP tracking from 1.8 to 1.7 while Morgan St cut from 2.7 to 2.3. While the Fed will certainly have to reduce near term projections for GDP at the Sept meeting, I saw a post from Vincent Reinhart that suggested new projections for 2016 might be bearish as Fed models are “mean reverting” and will forecast higher growth. However, ALL FOMC projections have been more optimistic than final data.
–Stocks are lower following Kerry’s speech suggesting military action against Syria is imminent. (Now back to the yahct). Treasuries are a bit higher and gold is at a new recent high having broken through 1400 (1411 currently). EM still in disarray as India rupee at new low and rupiah also getting crushed. Turkish lira at new low vs euro. China suggested the US go slowly on tapering due to EM stress, and while Fed officials at Jackson Hole said domestic considerations are the priority for Fed monetary policy, spillover effects from international market dislocations are definitely taken into account.
–Today’s news includes Consumer Confidence expected 78 from 80.3. German business confidence rose to the highest level in 16 months. Treasury auctions 2 yrs today as Sec’y Lew reports the US will bump up against the debt ceiling in mid October.
–There was a new buyer of about 50k FVV 118.25p yesterday, open interest increased by 41k. That strike is about 23 bps from FV settle yesterday…would suggest five year yield of nearly 1.85% on parallel shift.
