Nov 20. Fed minutes passingly reference overseas risks; Eurozone and China PMI’s underscore the danger

–Yesterday’s FOMC minutes were pretty much of a non-event.  TYZ was trading 126-125 just prior to release, and, after a brief swing up and down, settled there.  Yields were slightly higher on the day with the ten year up 2.5 to  234.9.  Once again, ten year note to tip spread, an inflation indicator, made a new multi year low at 184.6 down 2 on the day.  Many market based inflation signals are slipping heavily into the red; the Fed’s 5y forward inflation expectation index is perhaps the clearest example.
–Today’s Eurozone PMI showed a 16 month low at 51.4, while HSBC China Mfg PMI came in at 50.0, a six month low.  Yesterday’s Fed minutes acknowledged risks from slowing overseas growth, but concluded that the impact was likely to be limited.  It’s like George Costanza’s boss Mr Kruger, way behind on a daunting project to keep the company afloat, saying “Ah George, I’m not that worried about it…”  The Fed SHOULD be worried about it.
–Dollar/yen traded nearly 119 overnight, however, the Nikkei is not blindly following the upside anymore, with uneasiness about the QE experiment (and upcoming elections) finally taking root.  A related interesting note about yesterday’s FX trade had to do with a poll on the upcoming Swiss Gold referendum, which showed a decline in support of the proposal to force the country to hold 20% of its reserves in gold.  Gold futures immediately dropped $20 and EURCHF managed a bounce from 120.12, but the initial reactions were short lived.  Gold immediately recovered the loss and EURCHF is again knocking at the 120 door this morning.
–My bias is to be long treasury and back month eurodollar calls for another Oct 15 type trade.
–A lot of news this morning including CPI expected -0.1 and Core +0.1.  Job Claims to 284k.   Philly Fed 18.0 from 20.7.  Existing Home Sales 5.15m and Leading Indicators +0.5.

Posted on November 20, 2014 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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