Jan 27. FOMC day
–FOMC announcement today. The last statement acknowledged low inflation, “Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down”, but lift-off occurred anyway. As of now, market based measures of inflation are also trending lower. The key will likely be the balance of risks. From the last statement: “The Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.”
–Eurodollar options are viewing today’s FOMC as a non-event. For example, EDM6 9925 straddle yesterday settled at just 18, having been 20.5 a few days ago. Implied vol was hit across the curve yesterday.
–AAPL released earnings after the close, with shipments generally below expectations, and a nod to challenges in China. Stocks are lower this morning as a result, but in addition, crude oil is down over $1 as of this writing at 30.42, on higher than expected inventory data. There has been heightened attention on the extreme correlation between crude and stocks. When the press in general locks onto a particular aspect of the market as if the deepest secrets have been revealed, you can bet that it’s in its terminal phase. I would suspect the correlation is about to break, though in my estimation, the outcome will favor the physical, rather than paper claims.
