Oct 30. FOMC statement today. No drama (or press conference) expected
–FOMC announcement this afternoon. Other news includes ADP expected 138k, CPI expected +0.2 with Core +0.2 as well, and the 7 yr treasury auction. (Clues on jobs, inflation, and treasury dislocations caused by QE all in the hours before the Fed statement).
–Yesterday’s PPI data indicates continued low inflation, well under the Fed’s target. Y-o-y PPI only +0.3 though ex-food and energy +1.2.
–Stocks are at new highs and bonds are also rallying going into the Fed meeting. The previous two FOMC meetings were also preceded by stock rallies which saw pullbacks immediately afterwards.
–On the public front, municipal finance problems are being increasingly highlighted in the press. Reuters has a piece on San Bernardino CA which quit paying into Calpers for pensions as it declared bankruptcy. “You can’t make not paying Calpers cheap and easy, because then it creates this tremendous incentive for other cities to file for bankruptcy and stop meeting their obligations.” Homeowners walked away from underwater mortgages, will cities start walking away from pension obligations? http://www.reuters.com/article/2013/10/30/us-usa-municipality-sanber-idUSBRE99T01020131030
–New lows in some parts of the yield curve. Red/gold pack spread fell 1.5 to just over 252, about 50 bps under the high set a couple of months ago. Implied vol continues to edge lower. Ten year yield hugging the 2.5% level.
–Upcoming cuts in food stamps (Friday), uncertainty about pension payments and increased insurance costs for people that are losing coverage under Obamacare do not make for strong underlying fundamentals in the near term, and create deflationary forces weighing on the economy. The EU is facing similar pressure as banks try to rebuild capital in front of stress tests rather than extend new loans.
