July 27. FOMC fizzle…except for gold

–USD continued to decline as another FOMC announcement came and went.  “The Committee expects to begin implementing its balance sheet normalization program relatively soon…”  I would peg “soon” as September.  While the Fed wrings its hands over lack of inflation, the commodity complex is perking up a bit.  The Bbg Commodity Index BCOM was as low as 79.4 in late June and is now 83.7, mostly due to oil of course.  However, gold also jumped over $10/oz after the Fed announcement.  EUR highest in two years having traded as high as 117.40.  And of course, inflation in financial assets is well entrenched.

–Amusing story in Reuters: “The U.S. Federal Reserve’s plan to reduce its $4.5 trillion balance sheet could exert the same squeeze on emerging markets next year as three interest rate hikes, an Institute of International Finance (IIF) study shows.”  Um, the Fed’s interest rate increases thus far have only seen EEM rally (the emerging mkt etf).  So, last December EEM traded as low as 34.  Now, after three hikes it’s up to 44.  Does that mean when the Fed starts to reduce the balance sheet it will ‘squeeze’ up another 30%?   EEM is the mirror image of DXY, and as everybody knows, rate hikes haven’t done much for the dollar this year; financial conditions in general have eased.

–Implied vol lost its mojo on yesterday’s rally, with TY rejecting 4%.  TYU 126 straddle settled 1’01 from yesterday’s atm of 1’09.  Pre-Fed there was once again buying in 2EZ 9800 straddle for 32.5, settled 32.0.  Despite the lackluster environment we currently have, plenty can happen going into year end.  It’s all going to turn around on the eclipse!  August 21.

–Today’s news includes Jobless Claims 240k.  Durables expected +3.7 with non-def, ex-air expected +0.3.  AMZN reports earning today.




Posted on July 27, 2017 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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