Oct 28. Little mentioned food stamp cuts could turn into big news
–This week brings the FOMC meeting Wednesday, Retail Sales Tuesday and treasury auctions of 2, 5 and 7 year notes, beginning today.
–The theme in eurodollar options on Friday was put spread selling. EDH6 9900/9875ps sold about 50k (open interest -26k) and EDM6 9850/9825ps sold 60k (open interest -42k). These sales helped the green pack settle at a marginal new high for the move. Also 4EZ (gold dec) 9750/9700ps was sold on exit 35k. The question is whether these sales are a sign of final short covering capitulation, as ten years have also run into a strong resistance area (2.50 close Friday, down 1.5 bps). The fact that stocks continue to post new highs should also temper buying in fixed income, though it hasn’t thus far. And stocks continue to run in spite of a Goldman note citing increased downward forward guidance by companies for Q4. Taken together these moves suggest strong confidence that the Fed will reaffirm QE this week, perhaps leaving the market vulnerable to a surprise?
–If there is a pullback in fixed income, it should probably be seen as a buying opportunity as economic confidence has declined. Negative press about Obamacare feeds uncertainty, for example the LA Times has a piece on insurance sticker shock related to the new law. “Glitches” are relentless. Also, food stamp benefits are being cut across the board starting Friday. “The USDA projects that the average monthly food stamp payment of approximately $272 per household will decline in November by $36 for a family of four.” http://www.wnd.com/2013/10/new-domestic-threat-food-stamp-riots/#Z28OJujjxssTQc2H.99
–Another topic that could quickly spill over from the back burner is Puerto Rico, featured in an Economist piece. Muni markets have already been roiled by the increasing possibility of default, and the federal gov’t has to walk a fine line in order to avoid setting a bailout precedent.
–News today includes Industrial Production expected +0.4 and Dallas Fed, expected 9.0 from 12.8 last.
