March 16. FOMC day

–So it’s come down to Hillary vs Trump. In a metaphor, the Washington DC subway system, said by Reuters to be the second largest in the country, has unexpectedly been shut down today for emergency inspections.  Let’s hope Janet doesn’t take the subway to work.
–After retail sales data yesterday the Atlanta Fed GDPNow Q1 growth forecast was revised down to 1.9% from 2.2.  Real consumer spending projection fell from 3.3% to 2.7%.
–Today’s news includes CPI expected -0.3 but Core +0.2.  Housing Starts 1.146m.  Industrial Production -0.2%. In front of today’s FOMC announcement and press conference, the front end of the curve continued to trade under pressure.  EDM6 settled 9919, the lowest level since mid-January, at the 0.618 retracement of the late Dec low 9907.5 to Feb 11 high of 9939.  One-year eurodollar calendars are around the midpoint of the year’s range.  5/30 treasury spread made a new recent low of 123.6, with the five year yield up 1 bp and the bond down 1.
–The dot plot for 2016 will come further down, more toward the market (one-year euro$ calendars around  32-35 bps are indicative of 1.5 hikes over a year, and EDZ6 settled 98.995, while the 17 dot average for 2016 in Dec was just above 1.25%).  The surprise would be a tick higher in expected inflation back to 1.7% from 1.6 for 2016.  While “transitory” factors holding down inflation appear to be abating, the market doesn’t quite buy into the growth story at this point.  However, the Fed will also likely indicate that international stresses are moving into the rearview mirror, a slightly hawkish tilt.

Posted on March 16, 2016 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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