Nov 18. Bbg Commodity Index. Fed’s gonna hike???

–Treasury yields ended the day modestly lower with tens at 225.4 at the floor close, down 1.7 on the day.  Markets are now subject to being rattled by terrorist reports, both real and false, with yesterday’s being in Germany at Hannover Stadium, which was evacuated due to reports of explosives.
–I think there are other factors worthy of consideration which are as important to the health of the markets and the global economy as terror events.  These relate to the decline in global trade, and the increase in financial market stress.  I have attached a long term chart of the Bloomberg Commodity Index (BCOM).  It has plunged to well below the low of 2009 and has lost more than 20% this year alone!  The Baltic Freight Index is also making new lows.  A lot of the predictions for increased inflation depend on the idea that when these prices stabilize, inflation measures must go up.  Maybe, but I would simply note that rental inflation has been running well above the Fed’s target, and may begin to sharply decelerate just at the same time that commodities turn.
–The second more immediate concern is the health of financial markets in general.  Gundlach noted that credit downgrades are becoming more prevalent than upgrades, a red flag.  Veritas had to pull a debt offering yesterday.  This is a VERY negative sign of a turn in investor appetites for over-levered companies.  Note that Square is scheduled for IPO today.  It was already marked down, and will provide a litmus test for all the other absurdly valued start-ups hoping to actually monetize their theoretical prices. The window appears to be closing against the oncoming winter wind.
–The NY Fed issued an economic snapshot of the US yesterday.  Here’s a summary link where you can also also find the report itself:  https://www.newyorkfed.org/research/snapshot/index.html
If you didn’t know which way the Fed was leaning, and simply skimmed through the report, you would never conclude that a rate hike is under consideration.

BCOM

Posted on November 18, 2015 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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