Crushing the curve
December 2, 2021
–Powell’s hawkish shift and widening (gov’t) panic related to omicron conspired to force new lows in the curve with 2/10 down 4 at 87.3, 5/30 down 1 at 62.4 and red/gold euro$ pack spread down 8.25 to just under 42! On the ED curve whites -1.125, reds -3.375, greens -0.375, blues +3.0 and golds +4.875. Back end of the dollar curve slightly inverted as EDZ24 settled 9934.5, with EDH25 9835 and the next two blues 9836. EDH24 settled 9838.5 or 1.615%, and out to EDH27 there’s only 11.5 bps difference, with H27 9827.0. Open interest declines in longer maturity contracts point to short covering/ hedges being lifted. TY fell by 12.5k contracts, UXY -27.6k, US -0.9k and WN -6.5k.
–Stocks resumed weakness. Crude oil was hit further with CLF2 at 65.37 late yesterday, well below the 200 DMA at 67.49. Russell 2k had been in a long sideways range for nearly all of 2021, clearly defined by IWM (etf) with many lows around 210 and highs just above 230. In early November it broke out to the upside, but quickly failed at 244 and is now back near the lower end at 213.
–Markets appear to be telegraphing a warning to the Fed over a hawkish mistake, which will stifle both economic activity and inflation. It’s as if there’s no organic demand within the economy; with stimulus comes inflation and the illusion of strong activity, but the mere hint of withdrawal to restrain the former threatens the latter.
