Jan 16. Are the central banks going to save us this time?

–US tens dropped 6 bps yesterday to 177.5 and are down another 5 bps this morning as the surprise Swiss move reverberates through the markets.  Once again near eurodollar calendar spreads have made new lows, with peak EDU15/EDU16 at just 73, down another 5 on the day.  New low in red/green euro$ pack spread to just 56.25.  The market has removed the Fed from the equation, even though Reuters is running a piece this morning with this opener:  “Tumbling oil prices have strengthened rather than weakened the Federal Reserve’s resolve to start raising interest rates around midyear even as volatile markets and a softening U.S. inflation outlook made investors push back the timing of the “liftoff.”‘
–When Fed officials have talked about tightening previously, all they managed to effect is a flattening of the curve.  Yesterday, 5/30 actually made a new recent high at 119, up 4 bps.  Curve outperformance is moving forward, a direct reflection of a Fed on hold.  In December, NY Fed’s Dudley made a speech that cited financial conditions.  The market’s perception of financial conditions is tightening, with junk bond spreads making new highs as treasury yields tumble. The global stress occasioned by the Swiss move will now make next week’s ECB meeting the subject of intense focus.  Confidence in central banks has rolled over…the price of risk assets is now beginning to reflect… RISK.  As a friend of mine used to say, “I don’t want the cheese any more, just help me get my head out of this trap.”
–News today includes CPI expected -0.4 with Core +0.1.  Industrial Production expected -0.1.  Yesterday’s Job Claims jumped back above 300k.  Though US consumers are getting the benefits of cheaper gas, the oil patch is cutting workers.

Posted on January 16, 2015 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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