Oct 17, 2019

–This morning EDZ9 is the weakest contract on the board, trading -3 at 9808.5 (red pack -1.75 as of this writing).  It appears as if tightness in funding markets is expected to persist thru year-end.  Interestingly, yesterday’s settlements in near Fed Fund contracts show increasing certainty of an ease at the October 30 FOMC.  Oct/Nov FF spread settled -21.0  with FFV -0.25 at 9816.5 and FFX9 +3.5 to 9837.5.  However, the Nov/Jan spread settled at just -10, so odds of an ease at the Dec meeting are falling.  A couple of weeks ago, the Nov/Jan spread was much more negative than Oct/Nov; this relationship has flipped. Ease NOW rather than later.  With the advent of QE lite, the market is less inclined to project forward easing (after October).  Of course, comments like Lael Brainard’s yesterday also figure into the equation:  She views “…the cost-benefit assessment of negative rates as unattractive” for the US.  EDH0/EDH1 and the one-year calendars immediately behind edged to new recent highs, with March/march +0.5 to -21.0.

–Retail Sales weaker than expected at -0.3%.  Today’s news includes Housing Starts expected -3.2%, Philly Fed 7.6 vs 12.0 (range so far in 2019 -4.1 to +21.8) and Industrial Production -0.2%.  

–I read yesterday that the CEO of CSX said “It’s difficult, still very, very difficult to gauge where the overall economy is going”, as CSX rail volumes fell 5.3% yoy in the quarter.  Of course, he said much the same thing in July.  The Ass’n of American Railways website shows that current rail traffic at this point of the year is the weakest it has been in the last 4 years.

–Yesterday’s Beige Book was a slight downgrade.  Labor market tightness cited as an impediment to hiring. “A number of Districts reported that manufacturers reduced their headcounts because orders were soft. However, some firms were more concerned about the longer-term availability of workers and subsequently chose to reduce hours rather than staff levels.”  Is this a precursor to an actual reduction in staff?  The report also corroborated weak shipping data: “…some reports suggested that shipping rates remained lower than they were earlier this year because of excess capacity in the industry”.   Though the report was prepared by the Cleveland Fed, for some reason there was a “Sharknado” focus on Cape Cod suffering from weak tourism: “Media attention was “overly” focused on increased shark sightings and (rare) tornados.”.  You’re really gonna put that in the report Wilson?  Sure, I’ll bet you $5 that they don’t edit it out…

Image result for sharknado
Posted on October 17, 2019 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

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