Feb 25. The bull equity case continues
–Yields fell Friday with tens down 3.2 bps to 2.654%. The bond fell 2.4 bps, remaining above 3% at 3.021. Reds through blues were up 4 to 5 bps.–This morning stocks are pressing new highs as Trump delayed implementation of tariffs on China. Shanghai and Shenzhen Comps both surged over 5%. So we’ve had an end to the government shutdown, an end to US rate hikes, a probable China deal, a likely end to balance sheet reduction (Powell could re-hint in his appearance at the House tomorrow), and a large increase in China Social Finance. The bullish case has unfolded, page by page. On top of that, a narrowing of libor/ois signals a slight ease in credit conditions, and inflation expectations are edging a bit higher from recent declines. Oh, and Clarida says a low neutral rate could last for years (leaving stocks as the only alternative). What can you do for me NOW?
–Today the treasury crams in a bunch of auctions, including, 3 & 6 month bills, and $40 billion 2’s, and $41 billion 5’s.
–On the eurodollar curve, EDZ9/EDZ0 is the most negative one-yr spread at -18.0, closing down 2 on Friday. Reds to geens (2nd to 3rd year) are -6.0 while greens to blues (3rd to 4th) are the same magnitude but opposite sign at +6.5. The news media continues to quote ‘experts’ who time the inevitable recession for 2020 to 2021. The market seems to put it a bit closer, more like late 2019 to 2020. If it even happens. By 2021 we could get a ‘normal’ curve again.
