Markets at work
January 31, 2020
–This is how markets work. High prices bring out ingenuity and supply. The cure for high prices is high prices. Andy Totman shared this story with me yesterday about his son, who lives near Wicker park in Chicago. The lad went out to start his car and it sounded like a tank, so he looked underneath and discovered his catalytic converter had been sawed off, thus contributing to the supply of a metal in high demand. The observant will note that palladium has indeed pulled back, from about $2400 to $2250. Buy a Sawz-all. Sell palladium.
–Once again yields made new lows with tens marked at 1.555% at the time of futures settlement. However, blockbuster results from AMZN popped Nasdaq and helped tens pop back to 1.59% ref 131-005 in TYH0, which had settled 131-10.
–Vol remains directionally bid and euro$ straddles were up 1-1.5 bps as near calendars again made new recent lows. There was a buyer of about 10k red pack 100c strip for 6.0 bps. Underling contracts are EDH1, M1, U1 and Z1, the call settle prices were 0.75, 1.25, 1.75 and 2.50 so 6.25 settle. The futures settles were 98.725, 75.0, 77.0 and 74.0, so about 125 bps away from the 0% strike, beginning a bit over one year forward. In terms of calendars, as noted EDH1 settled 98.725 while front EDH0 settled 98.315, so the one-yr calendar fell another 2.5 bps to -41.5; moving a bit closer to the idea of 2 eases.
–Part of yesterday’s rally in rate futures (reds thru golds +4.5 to 5.0 bps) was early weakness in stocks, but the GDP Price deflator was soft at just 1.4% vs expected 1.8%. We’ll see more on prices with today’s Core PCE expected 1.6% vs 1.5 last.
–Personal consumption component of GDP was also tepid at 1.8%. There’s widespread acknowledgement of weak capex (and the oil rout certainly doesn’t help on that score) and equally widespread confidence in the strength of US consumer to carry the day. Then why did JPM just cut hundreds of jobs from its consumer division? Also released today is Chicago PMI, expected 49.0 vs 48.9, bolstered by trade in, um… ‘scrap metals’. In Q3 2018, Chgo PMI was as high as 66.5, but has since trended straight down to the Oct 31 low of 44.3.
–At the end of the day 4 US companies sported Trillion Dollar market caps: MSFT, AAPL, GOOGL, AMZN….MAGA. Also referred to as cuarto comas.
