Purchasing Power Parity

July 17, 2019

–Yields up Tuesday as Retail Sales were stronger than expected +0.4 and +0.7 ex-auto and gas.  However, import and export prices were soft.  In any case, tens rose 3 bps to 2.12% while the euro$ strip from reds through blues were -3.5.  Though the US economy seems to maintain momentum, Chicago’s Evans said a couple of eases would get inflation back to the 2% target.  However, it’s the same song and dance globally.  Coeure said the ECB is ready to act if necessary in front of next week’s meeting, and Kuroda said the Japanese economy is growing, but “…we will swiftly consider additional monetary easing steps if the economy loses momentum for hitting our inflation target.”

–Yesterday the dollar strengthened and commodities fell, with oil down $2/bbl, grains lower, gold under pressure, though silver had a notable rally.  The US dollar was stronger yesterday.  Which brings me to a tangent.  Early in my ‘career’ a bet was made between Chase and Morgan Stanley employees about who could eat 10 big macs.  I was working for  Chase on the CME floor, and had met our man, a substantial lad whose name I have since forgotten.  I bet $250 on him and lost.  He said that the middle of big mac number 7 was like hitting a brick wall.  Since that time, my normal bet was $500 against, sight unseen, I never lost, though it was accomplished by a guy in Alcocks when I wasn’t participating.  (These bets and other even more disgusting wagers came up every so often.  I hope they still do).  The normal bet was for 10 in an hour.  Anyway, I realized that it wasn’t just the quantity of food, it was that someone had to sit down in a jostling crowd of floor traders and clerks, which made the room hot and distracting.  It also drove home the idea of credit risk… but I’ll leave that for another time.  The story filtered into my consciousness because of the purchasing-power-parity Big Mac index.  I saw an item from a few days ago, noting that the index indicates the dollar is ‘too strong’.  It’s hard to generate inflation with a strong currency, a fact not lost on the US administration.  Easing by the Fed won’t do it alone if everyone’s playing the same game…  

–Today’s news includes Housing Starts and the Beige Book.

Posted on July 17, 2019 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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