Pre-Powell adjustments

July 9, 2019

–Overall, rates were little changed yesterday with tens slipping 1 bp to 2.032%.  However, the curve flattened to new lows, with 2/10 down 1.7 bps to 15.4 and 5/30 down 3.3 bps to 67.8 (having been just below 80 on June 24).  Red/gold ED pack spread also notched a new low, falling just over 1 bp to 23.625.  This pressure on the curve comes as Powell is set to testify before Congress tomorrow.  Today he speaks as well, regarding stress testing.  

–FF and euro$ contracts are solidly priced for a 25 bp cut at the end of the month.  There are continuous articles about demand for USD funding; the odds of Powell signaling that the Fed may hold fire are extremely small.  The curve would be crushed if the Fed does not ease, and DXY would build on recent gains.  Inflation targets would move farther away.  

–Both fixed income and stocks are lower this morning.  Continued weight on both the euro and DB.  The dollar is making gains against everything except bitcoin, which is near 13000 this morning.  Copper nearing new lows as China/US talks are set to resume.   Gold is down 10 at 1390, down 50 from the high print on Wednesday.  It feels like deflationary clouds are moving in, but US treasuries aren’t responding, perhaps as auctions loom, with 3’s today, followed by 10’s and 30’s.  Exporter South Korea’s won has resumed its slide this month, partially due to trade issues with Japan, but also a signal for global trade.

Posted on July 9, 2019 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

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