The Fourth Quarter
Sept 30, 2019
–Stock futures have rebounded (ESZ currently +10.25 at 2974.00) and fixed income is under modest profit taking pressure as the US administration walked back the idea of delisting China shares. The prospect of the trade war moving into capital flows would be a large escalation, but appears to be sidelined for now. China 70th anniversary tomorrow comes with a large military parade as Trump faces impeachment.
–Yields were little changed Friday with the curve edging slightly steeper. Tens ended at 1.675%, down 1 bp. The dollar continues to press new highs, putting pressure on precious metals. Chart attached of possible head and shoulders top in gold, with GCZ printing 1494 this morning, right at the neckline. EUR bounced Friday but is threatening 109 again this morning (currently 109.26).
–FFF0 settled Friday at 9842.5, a premium of 27.5 over FFV9 at 9815.0, indicating at least one ease at either the Oct 30 or Dec 11 FOMC. However, the odds according to calendar spreads favor the December meeting. Oct/Nov FF settled at just -11.5 while Nov/Jan settled -16.0. In dollars, the lowest one-year calendar remains the front Dec19/Dec20 at -50.0. In Short Sterling, Dec19/Dec20 settled Friday at -18 bps, testing the low of -19 in early Sept.
–Today’s news includes Chicago PMI which was sub-45 two months ago, rebounded to 50.4 last month and is expected 50.2.
–Quick recent historical note, Q4 last year was a disaster, kicked off by Powell’s Oct 3, 2018 “long way from neutral” pronouncement and accentuated by QT ratcheting up to $50 billion per month. SPX very close to the same levels as last year at this time, but now we’re looking at another round of QE and the neutral rate being a long way off in the opposite direction. Good for risk assets? Or are other negative catalysts lining up?
