Mere anarchy…
June 12, 2020
The best lack all conviction, while the worst / Are full of passionate intensity.
–All about stocks yesterday as SPX fell 5.9%, almost perfectly retracing 50% of the recent leg up from 2751.50 (May 14) to the high of 3220.50 (June 8). I am using ESU contract. 50% is 2986.0 and yesterday’s low 2985.25. DJIA was down 6.9% and Naz -5.3%.
–With the Fed having more or less dismissed negative rates, the front end didn’t move much, but the back end went into semi-panic mode with tens dropping another 8.6 bps in yield to 65.3. Powell refers to the amazingly rapid move in unemployment from historic lows to historic highs within a couple of months. We’ve had an equally dramatic move in the curve from last Friday’s highs; the steepening completely reversed. On Friday 2/10 spread closed at 57 and yesterday at 31.5, a plunge of 25.5 bps. On the eurodollar curve the red/green pack spread closed at a new low of 5.75. Perhaps that shouldn’t be surprising with the Fed indicating rates on hold for three years. The EDM21/EDM22 spread which settled 12 on Friday collapsed to 2.0 yesterday. –Just after futures settlement in rates, the NY Fed posted an implementation note raising the repo rate by 5 bps. EDU0 immediately cratered by 4.5 bps (Which should accentuate flattening).
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details
Beginning next week the o/n repo will be IOER +5 and 28 day term IOER +10. While the Fed tweaked the short end, deferred FF futures again trade over 100, indicating the possibility of negative rates. For example, FFQ21 settled 100.005.
–It’s becoming difficult to make sense of the markets or anything else…the phrase “the center cannot hold” keeps running through my head.
I have posted the poem below. It’s by Yeats from 1919, ‘The Second Coming’. According to wikipedia it describes post-WWI Europe and the onset of the Irish War of Independence, and, ironically enough was written at the time of the Spanish Flu pandemic. Perfectly poignant 100 years later.
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: a waste of desert sand;
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Wind shadows of the indignant desert birds.
The darkness drops again but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
