March 15. FOMC day. Hike is priced; watch the ‘dots’

–Yields remain pegged to the high end of ranges going into the Fed.  Slight drop in tens, -1.3 bps to 259.3 as call spread buyers in TY dominated the action.  For example, a buyer of 10k Week 1 April (expires on employment day) 123.75/124.5cs for 11.
–HYG and JNK (hi-yield etfs) have encountered heavy selling pressure since the beginning of the month, unsurprisingly correlated with the sell off in crude oil.  Both are testing 200 day moving averages.  Oil has bounced this morning.
–In terms of the Fed, the ‘dots’ and the market are pretty well aligned for the first time.  The end of 2017 mean is 137 bps (I believe 141 is median) and January 2018 Fed Funds, FFF8, settled 9867 or 133.  The 2018 dot median is 210 bps, and EDZ18 contract is 9779.5 or 220.5 bps.  Today is the chance for the market to vault ahead of Fed projections!
–Also worth mention is that FFN7, July Fed Fund contract, settled 9896.5, now indicating higher than 50/50 odds for a hike in June.
–News today includes CPI expected 0.0 with Core +0.2…yoy at 2.7 with Core 2.2.  Retail Sales expected +0.1.  Dutch elections.

A couple of days ago the Target CEO said “ We’ve not seen this number of distressed retailers since 2009 in the Great Recession.” There have been a couple of mentions of CMBS problems related to retailers. Yesterday was an article on ZH: US Dept Store Sales Crash Most on Record, citing BAML internal data.  The article cited delayed income tax refunds as a partial factor.  Retail sales is released today, expected +0.1.  Will a stingier household sector play into the Fed’s deliberations later in the year?Chart below shows several retailers vs Amazon.  Interesting divergence.

Posted on March 15, 2017 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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