March 1. Dudley: “Hey have you guys noticed the euro$ curve?”

–(Reuters) “At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside,” New York Federal Reserve President William Dudley said.
–Dudley’s reassessment combined with other factors has the market trading in an ambien induced sleepwalk of reinstated QE. (Buy risk assets, sell treasuries). China Mfg PMI and Caixin both below expectations at 49.0 and 48.0…must mean more stimulus on the way.  Japan sells ten year notes at negative yield, yet EURJPY near new lows.  Chicago PMI yesterday takes a new dive to 47.6.  Weak Europe PMIs put more pressure on the ECB to increase stimulus next week.  All of which take ESH from a deficit in early evening trade to a strong positive this morning (currently +15.00).  I would also note that both HYG and JNK had strong rallies yesterday and were able to close above the early Feb highs.  Spread compression is another sign of QE.  Central banks riding to the rescue…but we better allocate a bit more to gold, just in case (gold is up around 17% this year).  However, as BoE’s Carney reminded last Friday,
“It is a reminder that demand stimulus on its own can do little to counteract longer-term forces of demographic change and productivity growth.”  http://www.businessinsider.com/bank-of-england-mark-carney-downside-of-negative-interest-rates-2016-2
–Curve closed at new lows yesterday with 2/10 just above 95 bps and red/gold pack spread edging another 1.125 bps low to just under 75 bps (and was actually about 3.5 bps lower during the day).  Red/green closed at a new low of just 22.75 bps!  At least Dudley is getting the message….
–Today’s news includes ISM expected 48.5, was last at 48.2. 

Posted on March 1, 2016 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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