Jan 10, 2019. Powell up again

Analysts noted a disconnect between fairly dovish Fed minutes, released yesterday, and the FOMC press conference.  What’s clear from Fed officials’ comments over the last couple of days is that the word ‘patient’ is repeatedly used, a signal for a pause.  Powell speaks today at 12:00 EST.  Yesterday’s session was quiet, with the curve edging steeper.  The 2y note  fell 2.2 bps to 2.561, while tens rose 1.3 to 272.8 and bonds rose back above 3%, gaining 3.1 bps to 3.025. Every Fed Fund contract out to April ’20 settled within 5 bps on either side of the current Fed Effective of 2.40%, so for this minute the market is comfortable with an idle Fed for the next year-plus.  The decline in implied vol confirms the view of a hand-cuffed Fed and plodding economy.  It seems from Powell’s comments last week that he’s content to continue to let the balance-sheet normalization run unimpeded; any change to that outlook would likely boost stocks.

–Lack of progress on a deal to end the gov’t shutdown contributed to late weakness in equities, as did a blurb that China and the US were ‘far apart’ on the issue of subsidies to state run companies.  This morning there has been modest downside follow-through.

–January midcurve options expire tomorrow.  Large buyer yesterday of EDH9 9737.5/9750cs vs 9728.5, 1 paid for 60k, covering the short call spread of the 9725/9737/9750 ratio fly. 

Posted on January 10, 2019 at 5:00 am by alexmanzara · Permalink
In: Eurodollar Options

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