Oct 30. Aftermath of FOMC hawkish tilt. Stronger dollar. Lower stocks?

–Back in the old days of telephones and trading floors there were some amusing stories regarding trading errors.  The floors were pretty loud back then, and international phone connections sometimes weren’t that clear.  In any case, a clerk in the S&P’s gets a call from his Chinese customer in a busy, rallying market and gets this order: “buy all you want”, so of course the clerk says, “I didn’t catch your order…what?”  Again, this time in a scream, “buy all you want!!”.  So the clerk buys a ten lot and says I bought you ten so far… Response from Hong Kong: “WHAT?!  ONE…I told you to buy one.  BUY ONLY ONE.”

–It just seems to me that the Fed has told the market, regarding the dollar, BUY ALL YOU WANT.  An upgrade in labor market conditions, disregard of disinflation indicators, and an end to QE.  The euro started to sell off a couple of minutes before the actual announcement and picked up steam afterwards.  The dollar is stronger against, well, pretty much everything, including gold, which is off around $20 since pre-FOMC.  Crude oil too, sold off on the announcement, though it’s still above 81.50.  What isn’t selling off is Soybean meal, which has leapt by a third in the month of October, from 300 to over 400.  Apparently the crush has gone crazy.

–On the eurodollar curve, greens led the way down, with a drop of 12 bps.  August 2015 Fed Funds were down 4 bps, but still settled at 9974, or just 26 bps.  Five FOMC meetings in 2015 before that contract, the last being at the end of July, and it’s only at 1/4%, so it doesn’t appear as if the market is pricing rapid rate increases.  But the curve is still saying that Fed tightening will cause lower inflation and slower growth.  Hard flattening: 5/30 treasury spread was down 11 bps to 144, with the 30 yr bond actually lower in yield by 1.5 bps to 3.045, while 5’s jumped 9 to 160, with a sloppy auction foreshadowing the FOMC.  2/10 was down 6 to 183.5.  December 2020 ED contract was unchanged, with following contracts closing marginally higher.

–It’s likely to become a more challenging environment for emerging markets.  Brazil raised rates to 11.25.  Unsurprisingly, the ruble is at a new low.

Posted on October 30, 2014 at 5:31 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply