Feb 24. Fed’s on hold
–Stanley Fischer spoke last night and in my opinion the speech tilted somewhat dovish. He noted that while Core CPI rose above 2%, that “…further declines in oil prices suggest that total inflation will likely remain low for somewhat longer than had been previously expected before moving back to 2 percent.” He also mentioned risks from asset price declines and tightening of financial conditions. With regard to employment, he allowed that a modest “overshoot” could be helpful. And finally, he addressed the size of the balance sheet, maintaining that there’s “…some benefit to maintaining a larger balance sheet for a time.”
–This morning interest rate futures are rallying with the ten year yield below 170, from yesterday’s close of 174.5. Stocks are weaker after a relatively soft close yesterday. Gold is rallying and the pound is making new lows near 1.39, with Brexit looming as another uncertainty.
–Yesterday, KC Fed chief Esther George spoke as well. Much more hawkish, insisting that March is a live meeting. It isn’t. Today we have Lacker and Kaplan comments, with Bullard after the close. Five year notes will be auctioned, and New Home Sales are released this morning, expected 520k rate.
–As a clear example of Fischer’s concern about international volatility spilling over into the US economy, JPM said yesterday that Q1 revenue from investment banking is down 25% and trading revenue is down 20% from a year ago. The bank is also setting aside $600 million for possible loan losses relating to energy and mining. As the banker on South Park says, “Annnnnnd…it’s gone. Next customer please.”
–Even though there were relatively small net changes in US rate futures, it’s worth noting that the curve flattened further. Red/green euro$ pack spread (2nd to 3rd year) made a new low of 25.625 bps. Red/gold was down another 0.5 to close at a new low of 81.25.
