Reverse manipulation
January 14, 2020
–(AP) The US budget deficit thru the first three months of this budget year is up 11.8% from the same period a year ago, putting the country on track to record its first $1 trillion deficit in eight years. Both spending and revenues set records but spending rose at a faster clip.
–I wonder what would happen if we didn’t have all those billions in tariffs rolling in, or if payments of unemployment insurance were suddenly to increase, or if higher rates caused interest payments on the debt to skyrocket?
–At the beginning of August, USDCNY was just under 6.9. Then China let the yuan fall and on Aug 5 the US labelled China a currency manipulator, as CNY went to 7.18. Since September the yuan has steadily strengthened and is back at 6.9, with the US dropping the fx manipulator tag just before the Phase 1 signing. Full round turn. In the latter part of July 2019 (before the manipulator label) the US TY yield was around 2.05%. By August it had tumbled to below 1.50%. Now it’s back at 1.85%. If just looking at yuan perhaps it should be 20 bps higher? By the way, SPX was 3000 pre-manipulator, bounced between 2800 and 3000 afterwards, and is now 3288. And of course, in late July the FOMC started to manipulate the target FF rate lower.
–CPI today expected +0.3 with yoy Core 2.3%. Yesterday yields drifted a touch higher with tens +2.3 to 1.844%. The curve edged steeper with 2/10 up half a bp to 26. Maybe worth a note that 2/10 in Germany ended right near its recent high at 43.7.
–Correction from yesterday’s note; FEB treasury options expire one week from Friday. With inflation data, tax and auction settlement date tomorrow, retail sales on Thursday, TYG 129 straddle now 39/64s, about 7.5 bps.
