March 11. Two major stimulus moves. Will the market buy it?

–Wild day yesterday with large ranges across many products as the ECB expanded QE to include investment grade corporate bonds.  Earlier in the day, China also announced stimulus measures.  From Reuters:

“China’s central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, two people with direct knowledge of the new policy told Reuters.

The new rules would reduce commercial banks’ non-performing loan (NPL) ratios, and free up cash for fresh lending for investment in a new wave of infrastructure products and factory upgrades that the government hopes will rejuvenate the world’s second-largest economy.”

–So two major stimulus catalysts, which should have been positive for risk assets, but as of yesterday’s close the result wasn’t particularly clear, with outside days in SPX, Nasdaq, and DJ Comp and the latter two closing slightly negative.

–5/30 made a new low yesterday at 125.8.  Near eurodollar calendars made new highs.  For example, EDM16/EDM17 jumped 5 bps to 33.  EDU6/EDZ6 made a new high at 9 bps.

–March midcurves expire today

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The Fed’s Z.1 Flow of Funds came out today for Q4.  The press always focuses on Household Net Worth, but I just want to mention a few things from the summary tables of debt growth.

Over 2015, the big categories of debt growth DECELERATED.  For example, Household Mortgage Growth was only 1.5% in Q4 vs 1.7 in Q3.  Consumer Credit decelerated for the last three quarters.  Corporate debt decelerated over the past three quarters, though the absolute level of $8.097T is at a record.  State and local gov’t debt fell to zero growth in Q4.  For some reasons the Federal Gov’t Growth Rate exploded at an 18.5% rate to a record $15.166 T.  Decelerating growth levels of debt means deceleration in the economy.  It’s that simple.

If table cannot be viewed here are last 3 qtrs growth rates, Q2, Q3, Q4:  Mortgage 2.5, 1.7, 1.5.  Cons Cred 8.5, 7.2, 5.9.  Corp 8.6, 4.6, 2.7.  State/local govt 1.0, 1.7, 0.0.  Fed govt 2.4, 0.2, 18.5.

FROM Z.1 FED FLOW OF FUNDS REPORT

10-Mar-16

2015

HH Home Mortgage

Consumer Credit

Corporate

State & Local Govt

Fed Gov’t

Q1

0.0

5.6

8.5

4.3

-1.1

Q2

2.5

8.5

8.6

1.0

2.4

Q3

1.7

7.2

4.6

1.7

0.2

Q4

1.5

5.9

2.7

0.0

18.5

Outstanding Amt

9490.6

3533.1

8096.9

2979.6

15165.6

Posted on March 11, 2016 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

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