Aug 16. ECB carefully scripts next moves….like Trump!
-From Reuters this morning- “ECB President Mario Draghi will not deliver a new policy message at the U.S. Federal Reserve’s Jackson Hole conference, two sources familiar with the situation said, tempering expectations for the bank to start charting the course out of stimulus.” The article goes on to say Draghi wants to avoid policy discussions until later in autumn, most likely in October. Jackson Hole Conference is at the end of next week.
–Yields rose yesterday, partially due to stronger than expected retail sales. Ten year rose 4.7 bps to 226.4. Eurodollar curve also steepened slightly. One-year spreads remain clustered around 1/4%. EDZ7/Z8 +2.5 to 27.0. EDH8/H9 +2 to 23.5. FFF8/FFF9 +2 to 23.0. There was continued buying in 0EZ 9812/9800 put spread, approx 100k bought yesterday at 2.75. Open interest in the two strikes: 397k and 381k…buys have been from 3.5 to 2.25. As mentioned yesterday, there is also continued accumulation of 2EZ 9775p vs 4EZ 9725p, paying 0.5 for Green in 8k. Bear flattener trade; EDZ19/EDZ21 settled 38.0.
–NY Fed released a report of household debt yesterday, link at bottom. The fact that total household debt has now exceeded the previous peak is probably inconsequential given growth in the economy. However, one interesting stat concerns student loan debt: “11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017Q2”. Most of this debt is owned by the US Gov’t, so again, perhaps it doesn’t really matter, but possibly leads to more treasury issuance? Corporate debt is likely a larger concern as it has also reached a record at $13.7T (business + corp), and a growing % of GDP. AMZN issuing $16b to fund Whole Foods purchase.
–BAML warns that expectations of increased earnings are falling in possible worrying sign for stocks relative to bonds.
–Fed minutes this afternoon.
–Article on study of low vol/
–NY Fed household debt report
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2017Q2.pdf
