It’s beginning to feel like Sept 2015; a hike was priced, but didn’t happen

–Jerome Powell is getting a real-time test of whether the economy and the stock market are one and the same.  Just prior to tomorrow’s FOMC, two- and five-year notes are making new highs, even though US stock futures are seeing a small bounce.  There’s a bit more uncertainty as to a hike; January Fed funds settled 9763.0 and ticked 9764.5 this morning (63-63.5 indicates about 85% chance of a hike).  Red eurodollars leading the charge higher, +5 this morning.  WTI crude continues to make new lows, last -1.50 at 48.70.  If there’s a pause, the Fed can blame diminished inflation expectations due to the implosion in commodities.  

–President Xi gave his speech today marking 40 years of reform, noting that China, while continuing to always press forward, ‘may face unimaginable difficulties.’ Nothing in the speech about smoothing over trade frictions.  Best to plan for tougher times ahead, and communicate the concerns.  On that note, friend TS mentioned that trading in the US may be driven by hedge funds raising cash for redemptions.  Performance numbers aren’t that great, and calls for the return of capital are likely to be large.  Forced selling is likely to become even more difficult into thin end-of-year conditions.  

–Housing starts and building permits today.  

Posted on December 18, 2018 at 5:02 am by alexmanzara · Permalink
In: Eurodollar Options

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