Oct 12. The Morlocks
–Once again light volume and small ranges in interest rate futures. The curve flattened with the two year yield +1.3 at 151.7, and the thirty year -0.6 at 287.5 (30 year auction today). I marked 5/30 at 92.2 which is close to its recent low, and red/gold pack spread at 43.625, also near the year’s low of 40.25. Large trade in 0EZ 9812/9800 put spread, 5.5 paid for 60k covered 9810.5. Settled 5.75 vs 9809.5. Open interest in the strikes +44k and +83k to 503k and 694k respectively. Jan FF still indicate 80% chance of a hike in December, which means another 5 bps on an actual hike. If that happened across the curve then EDZ8 would be near the lower strike.
–I didn’t read the Fed minutes, but clearly there’s still a debate about whether inflation will ever firm up again. I would simply note that the dollar weakened yesterday (euro strength) and that the 10 yr tip breakeven edged to a new recent high of 189.1. Gold is flirting with 1300 again this morning, while bitcoin surpassed 5000 for the first time and is up five fold on the year. Remember the good old days? It was early March of THIS YEAR, 2017, when Bitcoin first traded parity with gold, which was then at 1233.
–Both Brainard and Powell have an opportunity to fret about the lack of inflation today, both at 10:30. Brainard on a monetary policy panel and Powell talking about Emerging Markets. No inflation there. EEM (Emerging mkt etf) was at 34 in late December of last year and is now 46, a gain of only 35%.
–Economic data includes PPI expected +0.4 and Core +0.2.
–One last note about price increases. It was in late 2015 that the sickening slump in crude oil was close to its culmination. So severe it was, that even stocks had a brief negative reaction. Since that time (January of 2016), SPX is up around 41% and Nasdaq nearly 50%. But you know what has trounced them both? (No points for saying bitcoin or the growth in the State of Illinois unpaid contractor bills). Base metals. The Bloomberg base metals index is +58% since then and near the high of the year. Who could possibly have use for base metals in our digital social media world? Oh yeah. The Morlocks, who are toiling away underground making bombs.
