Feb 27. Dudley and Fischer today
–The voices on the Fed that really matter are Yellen, Dudley and Fischer. Yellen testified this week, now Dudley and Fischer can provide fine tuning.
–Treasuries opened higher Thursday, but had an outside day and closed near the lows as the week’s treasury auctions ended with a tepid 7 yr. Though price action was bearish, open interest in all treasury futures besides tens (+11k) fell on the day. Additionally, implied vol was marked down, punctuated by a late seller of 3k TYM 125/129 strangles at 1’24. With a futures close of 127-20.5, that’s approx a 50 bp wide strangle, 16 bps from the call and 32 from the put. I marked TYM vol at 5.8, a new low. The fact that both open interest and implied vol are easing does NOT confirm the move lower in prices. [Open int changes: TU -47.7k, FV -49k, TY +11k, US -38.5k and Ultra -18k from prelim sheets]
–The euro plunged to 1.12, the lowest level of the month. Crude oil also closed at the lowest level of the month near $48/bbl in CLJ. This morning USD/CNY is making a new high above 6.27. The stronger dollar in general should be supporting treasuries, but if China really starts to let its currency depreciate, then even stronger disinflationary pressures will be headed to US shores. However, the spread between ten year treasuries and tips actually made a new high according to my marks, at 180 bps. So as usual, there are mixed messages.
–Interesting note from Albert Edwards yesterday: “Wall Street analysts are chopping their profit forecasts so broadly that a 6-month rate of change for estimated profits is now negative; current rate of earnings deceleration usually linked to recessions, writes Societe Generale global strategist Albert Edwards in note earlier, citing data from IBES for February.”
–Dudley, Mester and Fischer all speak today in NY, especially important will be Fischer. Speech – Vice Chairman Stanley Fischer
Conducting Monetary Policy with a Large Balance Sheet
At the 2015 U.S. Monetary Policy Forum, New York, New York
1:30 p.m. ET
–Other news includes Q4 GDP revision expected 2.1 from 2.6, and Chicago PMI exp 58.7.
