Requires more study
December 16, 2020
–Yields pushed a bit higher as stocks soared. Tens +3 bps at 92. Front end was dominated by trades consisting of 1/16% wide put and call spreads. For example, buying of approx 10k EDM1 99.8125/99.75p spread for 1.5 ref EDM1 9982.5/83. When it’s all about pegging forward contracts to the tightest 1/16th, it doesn’t paint a pretty picture for the future of the contract. On the other hand, there’s a bit of life in the long end. Late buyer of 8k TYG 167/169ps for 18 covered 173-01 with 9 delta. Actually, that’s not particularly exciting either, with 2 points in the bonds equating to a little over 9 bps.
–It’s against this backdrop that the FOMC meets, with the biggest drama being the size and composition of bond buying. It’s clear that the massive balance sheet expansion has juiced up big tech stocks and the Robinhood crowd. I suppose now all it takes is a bit of fine-tuning? By the way, DXY at a new low for the year, just above 90. In February, just before the Covid inspired volatility, it was 100. Drop of ten percent…
–Reuters cites a study by JPM: “US households across the board built up savings during the pandemic, but low-come households are burning through their cash more quickly than higher-income families and could be out of savings soon if more aid is not delivered, according to a [JPM] studly released on Wednesday.” No sh-t, huh? If the guys on this study were in another time, they probably would have been working on something like the Manhattan Project or Hubble telescope. It’s turning into a Kafka novel. Here’s a link to an angry and frustrated restaurant owner confronting covid regulators:
Sounds like this guy has burned through a lot of cash trying to survive. Obviously there needs to be more of a fiscal response, which Powell will likely emphasize again. Hero of the day for helping to plug the gap: Mackenzie Scott, who has given away $4 billion in 4 months! (It’s a write-off JK).
–Other news today includes Retail Sales expected -0.3 but +0.1 excluding autos and gas. Markit Composite also released, it was 58.6 last.
