Nov 13. Factors restraining inflation are transitory. Still?

–Modest rally in fixed income yesterday with green euro$ pack +2.25 and golds +4.875.  There continues to be buying in EDF 9950 calls for 1.0 (January expiration, EDH6 underlying), as open interest rose 40k yesterday to 279k.  Copper fell to new six year lows as commodities remain under heavy pressure.
–Early in the day Dudley said, “I see the risks right now of moving too quickly versus moving too slowly as nearly balanced.” He also said “…after lift-off the upward trajectory of the short term rates is likely to be quite shallow.”  In other words, we’re going to have to ease after we tighten (sarcasm).
–Fischer followed yesterday evening with these comments:  “There is good reason to expect that the drag on GDP growth from the stronger dollar will persist well into next year and likely spell continued weakness in the traded-goods-producing sectors of the economy that are especially exposed to the exchange rate,” Fischer said.
“Some of the forces holding down inflation in 2015 — particularly those due to a stronger dollar and lower energy prices — will begin to fade next year.”
–Both Dudley and Fischer suggest that eventually the dollar will top and oil prices will stabilize, causing a transition to higher inflation.  But that argument is starting to lose some of its punch.  For example, Cisco yesterday, like other companies, blamed its miss on the stronger dollar.  Macy’s reported a miss earlier in the week and is down nearly half from its July high and lost 25% from just last week.  Nordstrom’s also reported weak results, saying that people simply aren’t shopping for apparel.  (I thought the lower gas prices were supposed to boost spending on other things).
–Today we have PPI expected +0.2 with Core +0.1.  Retail Sales expected +0.3 and +0.4 ex-autos.  I don’t know how it could be possible for autos to hold down retail sales given the explosive increase in auto loans.

Posted on November 13, 2015 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply