Dec 20. A bad year for stocks gets worse- blame shifts from trade wars to Fed

–Curve flattened hard as the Fed hike wasn’t particularly dovish.  In his press comments, Powell acknowledged signals of possible headwinds, but said that the committee hadn’t fundamentally altered its favorable view of the economy.  In the Implementation Notehttps://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a1.htm  balance sheet reduction is slated to continue at $50 billion/month, and in the press conference Powell said it would remain on autopilot.  It doesn’t really matter that the ‘dots’ came down to a forecast of two hikes for 2019 vs the last estimate of three.  The balance sheet reduction represents a dollop of tightening every single month.


(In September, the Federal Fund projection for 2019 was 3.1 and in 2020 3.4.  At this meeting the projections were shaved back to 2.9 in ’19 and 3.1 in ’20).

–In any case, EDH9/EDH0 fell to zero, down 2.5 on the day.  Not a single one-year euro$ calendar spread is positive out to EDZ20/EDZ21.  The lowest one-year remains EDZ19/EDZ20 which settled -15.5, a new low.  So the difference between the 2019 and 2020 dot is POSITIVE 20 and the market forecast is NEGATIVE 15.5.  Feb/April FF spread closed at +4, but the forward spreads are just barely above zero. Bloomberg has a headline suggesting a Fed ‘Mistake’ and the market is certainly leaning towards that opinion.

–Crude oil continues to get crushed and is at new lows this morning with CLG9 under 46.50.  Stocks are quite heavy.  New lows for the year yesterday in DJIA, RUSSELL (by a lot), SPX, though Nasdaq just held the low of February.  Sweden’s Riksbank also hiked this morning.–As the stock market pain spreads, does Trump fire Powell?  A Forbes article from a few months ago indicates it’s possible citing Section 10 of the Fed’s rules: https://www.forbes.com/sites/patrickwwatson/2018/09/06/how-trump-could-fire-powell-and-rebuild-the-fed/#579f1de586c2
An older WSJ article says in 1965 President Johnson wanted to fire McChesney, and deputy Attorney General Ramsey said no, outlining several reasons.  No matter, it’s a virtual lock that Trump will bring it up, and create a bit more volatility.

Posted on December 20, 2018 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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