Sept 26. Fed’s Flow of Funds report shows deceleration of credit growth
–Once again all one year calendar spreads in dollars went to new recent lows. For example, EDU5/U6 settled 102.5, down 2.5 on day, just below the spike low after FOMC. However, while near contracts have recaptured nearly all of the sell off since May, deferred contracts haven’t. For example, EDU17 hasn’t even come back to a 38% retracement yet. So, forward guidance has convinced the near part of the curve that nothing is going to happen. But the back end is going to be much more data dependent.
–Ten year note yield fell nearly 4 to 2.613. From May low yield of 1.62 to the high of nearly 3% in early Sept, the 38% retrace is 2.47, which I think is a reasonable objective.
–Walmart is apparently cutting new orders because inventory of unsold items is piling up. Also, Fed’s Flow of Funds report came out yesterday. I haven’t gone through it carefully (most news reports will tout the new high in household net worth, though apparently that has something to do with a change in pension calculations: ZH). What I would note is that mortgage debt declined in Q2, for the 17th straight quarter. Consumer Credit has decelerated for the past 2 qtrs. Business debt growth is reasonably strong (+6.9 in Q2, and the FT says US corporate bond issuance is set for a record in Sept) but Fedl Govt debt went from +10.1 Q1 to +2.5 Q2. Without credit growth, the economy stagnates. Period. On that note consider this snippet from BBG regarding Europe: “Loans to the private sector dropped 2 percent from a year earlier, the Frankfurt-based European Central Bank said today. That’s 16th monthly decline and the biggest since the start of the single currency in 1999.” There is no way Europe is “fixed” if loans to the private sector are falling.
–EDZ4 settled 9947…getting ever closer to the 9950 strike which has 477k open positions in calls. Delta around 40…the EDZ4 contract has only 776k open interest.
–News today includes Q2 GDP revision, expected +2.7. Job Claims expected 330k. Seven yr auction.
Alex Manzara
relevant links:
http://www.zerohedge.com/news/2013-09-25/rejoice-america-you-are-now-3-trillion-wealthier-due-definition-change
http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf
http://www.bloomberg.com/news/2013-09-26/ecb-says-private-sector-loans-fell-for-a-16th-month.html
