Nov 1. Elections and FOMC

Big news week ahead with the midterm election Tuesday and Fed meeting Wednesday.  The backdrop features a weak dollar, robust commodity prices, relatively strong stocks (all vulnerable to pullbacks).  Today’s news includes ISM expected 54.5 and Personal Income/Consumption, expected +0.3 / +0.4. 
–GDP was 2%, though many analysts note growth was led by inventory build, which is likely to slow in Q4. 
–While I think a Republican House and split government is pretty much priced in, Wednesday’s QE outcome could be a let down.  Though Bernanke may favor a large QE package, especially as Plosser and Fisher gain votes in 2011 which may pressage even more FOMC dissension than now, I think the announcement is likely to be open ended and perhaps somewhat of a disappointment to the bond market.  My guess is that it’s unlikely tens will trade below 2.5% again in the near term (2.61% Friday). 
–Spending at the Federal level is probably going to become further restrained, but the slow motion train wreck of state and municipal budgets continues.  Interesting story on Illinois Pension funds in the Chicago Tribune.  Main points: Worst in the nation with $80B (and some estimates are double) unfunded liability!  Of 5 funds, 2 are lowering target from 8.5% to 7.75% (with taxpayers on hook to make up difference).  Il Teachers Retirement fund has an 8.5% target, vs annualized returns of 3.72% in THE PAST DECADE.  Bug meets windshield.

Posted on October 31, 2010 at 3:39 pm by alexmanzara · Permalink
In: Eurodollar Options

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