Saftey bid, but near term easing not likely
January 6, 2020
–Well at least the China deal is progressing along smoothly, right? This morning Feb Gold traded 1580, up $100/oz from mid-December. WTI crude (CLG0) is 63.80 with a high of 64.72, having started December around 56. Rate futures are only slightly bid, facing auctions of 3s, 10s and 30’s this week. On the euro$ curve, last reds to first greens should probably be outperformers on the upside given mideast turmoil. Friday’s FOMC minutes suggested a possible upside tweak to IOER which prompted selling pressure on near contracts (FFG0 settled -1.5 while FFG1 settled +7.0), and the minutes further noted that as the Fed buys all the available t-bills, it might have to extend its purchases to short dated coupons. Finally, the minutes noted that buying will continue until morale improves or at least through the April tax date.
–It’s not clear that the mideast cauldron should lead to lower libor settings; perhaps the opposite as the Fed tries to hold the line on its ‘policy is in a good place’ stance. EDH0 settled unch’d at 9827 as the IOER adjustment was mentioned, having traded 29.5 early in the session. EDH0/EDH1 closed -8 at -25.5, and FFF0/FFF1 settled -24.75, both indicating a bias for one more Fed cut over this year. At futures settle I marked tens down 9 bps at 1.788%. The curve flattened with 2/10 down over 4 bps to 26.5, having ended 2019 at the year’s high of 35.2.
–With international tensions taking center stage, economic data is probably less important, but it’s worth a note that Mfg ISM released Friday was only 47.2, the lowest since 2009. Markit PMI today, Service ISM tomorrow and Payrolls on Friday.
–Jan euro$ midcurves expire Friday. 0EH 9850^ settled 8.5 vs EDH21 9852.5 and 2EH 9850^ settled 10.0 vs EDH22 9849.5.
