Sept 7. Persistent regime….persistently weak

–Yields plunged as Service ISM sank to its lowest level since 2010 at just 51.4.  The Fed’s Labor Market Conditions Index also fell to -0.7.  The ten year lopped off 5.5 bps to 154.1.  Even more ominously, some of the deferred one year eurodollar calendar spreads made new lows, with June’17/June’18 at just 11 bps.  It’s not just that odds for a near term hike are being squeezed out, it’s that the interest rate market perceives a stalled economy way out into the future.  Maybe Pravda has it right: “The US Economy is Clinging to Life”

This article also helpfully points out that the US has run out of money to pay for any large scale global conflicts.

–In any case, precious metals soared on the news, with Gold jumping over $27 /oz and Silver vaulting back over $20, gaining 72 cents.  On the other hand, crude oil gave away much of Monday’s gains associated with potential production cuts.  CLV settled just under $45 having been well above $46 on Monday.

–The Fed’s communication policy thus faces more challenges.  For example, a few days ago SF Fed’s Williams suggested the Fed should increase its inflation target.  Larry Summers made a similar point yesterday, saying that the Fed should stand pat until the economy is on much more solid footing.  However, Williams yesterday said it “makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” in remarks prepared for delivery to the Hayek Group. (RTRS)  Maybe Bullard has it right, we’re in a persistent regime and might as well just act as though it’s going to continue.

–Beige Book this afternoon.  

Posted on September 7, 2016 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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