Is Powell dovish?
March 19, 2019
–Stocks at new ytd highs this morning, as is WTI crude, with CLJ nearing $60/bbl at 59.60 last, +22. However, rate futures are also slightly better bid as the market anticipates a dovish Fed. While Q1 growth will be weak, former NY Fed chief Dudley thinks that there will be a rebound later in the year and, with that, a chance for more hikes as wage pressures build. In any case, I would imagine that Powell will not be particularly friendly in his news conference as he is not a stock market cheerleader. Rather, I think his instinct will be to lean against the stock market rebound and the growing perception that monetary policy has fed into asset price inflation which exacerbates income inequality.–Japan is pegging the 10 yr JGB around zero. From BBG: “Brian Chappatta notes that the all-important 10-year Treasury note’s yield has fluctuated within a 22-basis-point range since early January, narrower than any calendar-year quarter since 1965. On top of that, expected implied volatility as tracked by Bank of America Corp.’s Move Index just fell to its lowest level since 1988.” Seems like US tens are pegged as well. By the way, as US deficits increase, it’s worth noting that Japan’s debt to GDP surpassed 250%
–April options in treasuries expire Friday. Before the FOMC there was some new buying of otm options. FVJ 114.75p 2.5 paid 45k and FVK 115.25c 4.5 for 25k. One large trade of note in dollars: +30k 0EU/2EU 9775/9812c spread spread for 2.0, paying for green. EDU20/EDU21 futures spread is -6.5, but rolls lower as EDM0/EDM1 is -11.5. So if the curve stays the same shape but parallel shifts higher, over time this trade accrues a few bps.
–Factory Orders today expected +0.3.
