Markets ignore impeachment
December 18, 2019
–Stocks are hanging around all-time-highs in front of the impeachment vote. Interest rate futures are quiet, with little change in yesterday’s close. 2/10 squeaked to a new recent high of 25.6 with twos -1.2 bp and tens -0.2 to 1.887%. FedEx reported ‘horrendous’ results as a result of global trade issues and its more clear-cut problems with Amazon. Seems like it’s company specific, as the UPS chart holds well above the previous peak in April, while FDX is down over 20% from the high in April.
–EDU0/EDZ0/EDH1 butterly settled +4.5, the highest of any three month fly on the curve. This is, of course, due to end of year pressure reflected in the EDZ0 contract, with EDU0/Z0 -1.0 but EDZ0/H1 -5.5 (prices 9837.0, 9838.0, 9843.5). Back in September, when the repo ‘crisis’ was percolating, this fly traded to 8.5. I would attribute the recent pullback in the fly to lessened repo fears overall as the Fed shows that it’s not afraid to flood the system with liquidity, but there are also election considerations. Dallas Fed’s Kaplan was interviewed yesterday and he said that the upcoming election wouldn’t affect his thinking about rate moves (he’ll be a voting member on the FOMC next year), but in my opinion it clearly will affect the Fed’s actions, which is to say, a lack of action. Pent up moves for short rates in the first half of 2021?
–The Hill has an op-ed piece on Fed gov’t spending ‘Will the fed’l govt’s non-stop spending binge continue?”https://thehill.com/opinion/finance/474667-the-federal-governments-nonstop-spending-binge-continues
Somewhat interesting in relation to Kaplan’s tv appearance… he said he expected sluggish global growth, weaker manufacturing, but solid support from consumer spending. He didn’t mention government spending at all, but it has clearly been one of the main economic props, and Trump is instructing staff to look for spending cuts…after the election.
