The fight is against downside risks. Period

July 15, 2020

–Both stocks and bonds rallied yesterday with tens down 2.4 to 61.4 bps.  CPI higher than expected 0.6 with yoy Core 1.2% and NFIB was much stronger than expected at 100.6.  However, Fed officials continue to focus on downside risks.  For example, Bullard said the Fed will keep rates low for the foreseeable future and Kaplan noted more aid to states and municipalities will be needed.  Brainard fully outlined the Fed’s mindset in a speech yesterday which further boosted stocks.  She noted that downside risks predominate, and echoed that theme at least four times.  No mention of a risk that asset prices get over their skis. No mention of David Portnoy.  Just more accommodation until we are sure covid risks have vanished.  
“With a dense fog of COVID-related uncertainty shrouding the outlook, the recovery likely will face headwinds for some time, calling for a sustained commitment to accommodation, along with additional fiscal support.”
“Given the downside risks to the outlook, there may come a time when it is helpful to reinforce the credibility of forward guidance and lessen the burden on the balance sheet with the addition of targets on the short-to-medium end of the yield curve.
“The Federal Reserve remains actively committed to supporting the flow of credit to households and businesses and providing a backstop if downside risks materialize. “
“…policy should seek to achieve employment outcomes with the kind of breadth and depth that were only achieved late in the previous recovery.”

–Stocks continue to move higher on a promising COVID test.  UK issued three year notes at a negative yield.  AAPL won its tax case with an EU Court and has avoided having to pay $14.6 billion to Ireland.  Dollar index is currently testing the low in June and is closing in on the March low (current 9595 with March low 9465).  EUR high in March was 1.1495 and is now 1.1431.

–Industrial Production expected 4.3%.  Beige book in the afternoon.  

Posted on July 15, 2020 at 5:51 am by alexmanzara · Permalink
In: Eurodollar Options

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