November 5. Yellen tilts toward December but doesn’t commit

–Yellen gently reinforced the idea of a December rate hike, “…moving in a timely fashion would be a prudent thing to do; will help the Fed move at a gradual pace.” Dudley didn’t really talk about policy aside from saying he agrees with Yellen.  Fischer’s speech was mostly about central bank independence, but included this snippet “…after much research on the effect of major financial crises on growth and on the dynamics of business cycles, we are focused to a much greater extent than in the past on the importance of financial stability.”

–The market responded to Yellen with a flatter curve.  For example, the red/gold euro$ pack spread closed at 114, down 5.625 on the day.  This spread is nearing support levels last seen in March (103.75) and mid-2012 (106.6).  The dollar index posted a new recent high and appears poised to test levels from early August. I marked the US 2yr vs German Schatz at a new high of 113 bps, further undermining the Euro.  Gold is nearing $1100/oz, having plunged $80 since mid-August. Crude fell as well, down 140 late to 4650, substantially reversing Tuesday’s strength.

–Eurodollars were steeper in the front, flatter in the back.  Near calendar spreads made new highs, with EDZ5/EDZ6, now the peak one-year, at 66 bps, up 3.5 on the day.  Back calendar spreads edged to new lows.  For example, the blue pack was marginally lower on the day, while the gold pack closed higher. (4th to 5th years).  USZ also closed slightly higher on the day.  Rather than really punch home certainty of a hike, Yellen is allowing upcoming employment reports to exert more influence.  I would guess it’s unlikely that Friday’s report will derail a hike, given solid ADP data yesterday.  There was also talk circulating yesterday that Bernanke was at an event and said that not even well below consensus NFP would stop the Fed from hiking, though we had the same sort of comments prior to September’s NON-hike.

–Jobless claims this morning expected 262k.  Several Fed speakers today, including Fischer again this morning, at a NY Fed Conference.

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

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