Dec 29. Themes continue into year end
–Quiet day yesterday, but there are a few interesting notes. First, the Dallas Fed came out at -20.1 versus expected -7.0, another in a string of weak data releases. To add insult to injury crude oil fell 1.29 to 36.81 (CLG6), reversing about half of last week’s rally. March Corn made a new contract low at 3.60.
–Second, the eurodollar curve fell to new lows. Red/gold pack spread fell 3.5 to 89.75, its lowest level since 2008. Red/green pack spread (2nd to 3rd year) closed at just 40.25 bps. These are not levels that suggest economic vibrancy.
–Third, China continues a slow depreciation, which is almost certain to pressure Asian neighbors to lower export prices in order to remain competitive.
–Fourth, hi-yield again turned down, casting doubt on the tentative bottoming from mid-December.
–Even on a slow day, these factors tie into a theme of declining inflation and growth. However, the turn of year can often point to a change in trend, and certainly the flattener is becoming crowded. If the Fed were to pull back from its narrative of removal of accommodation, then a rebound in the curve would surely follow.
